IR35 – let’s work together

IR35 – a chance for us to work together


As we all know by now, IR35 will impact all public and private business, except for small private businesses, with effect from 6 April 2021.  These new rules put the tax status determination on the client rather than the ‘contractor’ or PSC (Personal Service Company); who currently self-determine their status.

Sounds simple.  It is and really should be.  Too many people are trying to over-egg this, usually for their own gain and to drive their own revenues.

There is far too much scaremongering and hype about what this all means to clients and contracting businesses.  Note I use the term contracting businesses and not contractors.  I don’t like the term contractor as it has connotations of client-controlled one-man outfits, which as we all, is not always the case.

Let’s be clear.  Clients need now and will always need contingent resource, especially for delivering change.  They need a mix of extra manpower and a need to bring in experts.  Smaller consulting businesses offer more choice and flexibility to clients that outsourcing whole project teams to bigger consultancies.  So, who should be deemed as inside IR35 and who shouldn’t?  Good question.  Time to dispel some myths and some of the scaremongering.

Firstly, IR35 is about taxing non-employed workers the same as employees doing a similar job.  It is not concerned with giving everyone the same rights.  Contracting businesses asking for workers rights in addition to traditional contracting day-rates are missing the point.  If workers want employment rights, become and employee and be paid the same as an employee.  Day rates reward the worker taking the financial risk of being in business on their own account.

When clients deem that they have a need to bring in external assistance (whether outsourcing, third parties or contingent workers), they need to ask themselves why. 

  • Why bring in a temporary resource? 
  • For how long? 
  • What skills do I need? 
  • Can I do the job of the temporary worker? 
  • Does my organisation already have those existing skills? 
  • Do I need to closely control what my temporary worker does, where they do it, how they do it?
  • What happens if the assignment I engage my temporary worker for ceases?
  • Am I expecting an individual to personally perform the assignment? Note this one as it’s important and crucial.

Great, so what does this really mean in practice?

Some characterises that would point towards the engagement being inside IR35:

  • Expecting an individual to personally fulfil the assignment i.e. you want the person and not their business
  • Asking for CVs and “interviewing” them as if hiring a permanent staff member
  • Needing “bums of seats” and extra resources under direct control of the client or line manager
  • Having a temporary worker do the job the way you tell them to
  • Being able to re-assign the temporary worker to another assignment as and when you choose
  • Refusing to accept in any circumstances a substitute of the worker

Conversely, the following would point towards outside of IR35:

  • Needing to bring in an expert for a specific purpose and length of time
  • Accepting that you are engaging with a business not an individual
  • Allowing the contracting business to execute the assignment as they deem best to deliver the agreed assignment
  • Allowing the contracting business to swap in and out a suitable and equally experienced replacement
  • Asking the contracting business for a SOW (Statement of Work) proposal, portfolio and/or references; rather than individual workers’ CVs
  • Releasing the contracted worker from the contracted assignment once complete, and/or even releasing them early if their original assignment is no longer required

Before we move on, there are 3 further taboo topics to consider


  • The tool is a very simple questionnaire with an algorithm that produces an output based on the answers given; HMRC would deem someone inside or outside IR35 as a result
  • HMRC allege to stand by the CEST determination, but only when it suits them
  • It’s widely disputed that CEST is flawed and too favourable at producing an inside IR35 result
  • Also, of great importance, is competence and understanding of the questions being asked, to enable you to answer correctly; misinterpret a question at your peril

Working practices

  • What does the relationship between client and worker really look like?
  • How does the engagement manager treat the worker; do they treat them like an employee?
  • This is where a lot of clients would trip themselves up; they want the best of both worlds and it’s not possible

Contracts and SOWs

  • What does your client and agency contract look like? Does it compliment those that agencies put in place for contracting businesses?
  • Do your contracting businesses have statement of works covering assignments?  Do you even know the difference between a contract and Statement of Work?
  • Statement of Works clearly demonstrate a temporary and fixed scope; they will protect you and the contracting business

OK, so taking this all into account, if as a client you still think you are engaging an individual, perhaps because the business is a single-person organisation, does that always point to an inside IR35 assignment?  No, it doesn’t.  3 further factors need to be taken in to account, namely control, substitution and MOO?


If as a client, it is essential to you to dictate to the worker exactly what to do, where to work, what hours to work, how to do the job, then this points towards the worker being controlled.  But do you really need to control the worker this closely?  If you’re bringing in an expert and a trusted seasoned professional, they are capable of delivering against their assignment autonomously and in a way they deem best.  After all, isn’t that why you what the temporary worker?

Let’s not get control in this sense mixed up with ‘assignment’ and giving a worker ‘further’ work.  It’s not the same thing.  Control is purely down to how you control things during the contracted assignment.


Much noise has been made about whether a client could, or should flatty refuse to accept a substitute.  Let’s be clear, if you hire an expert to deliver a job and that expert needs to bring in a short-term replacement, if your engaged contracting business can bring in a substitute of the same experience and knowledge of the project, then what is the issue?  You should be ok with a contracting business bringing in a colleague or sub-contracting the work.

Granted we know that if a worker has been given access to the clients’ premises and/or computer systems, that short term notice to give a substitute the same access can be a challenge, but this doesn’t make it insurmountable.  Both parties need to be reasonable.  If a as client you are ok with allowing a substitute, then what is the harm to your engagement?  Your contracting business takes the financial and reputation risk.  Worst case scenario, you end the engagement with your contracting business and not pay them for the duration of the substitute.  Sounds fair, right?


MOO means ‘mutuality of obligation’.  There are two interpretations of MOO and they regularly get confused; largely to HMRC’s benefit.  They are: 1) contractual law and 2) employment law

Contractual law is basically that you agree to pay someone for the contracted work i.e. one party agrees to do or not do what is said in the contract in exchange for something, usually a fee.

Employment law however would consider MOO as continuous and uninterrupted employment and that the employer guarantees to continue employing the worker and giving them continuous work, as long as they abide by their employment contract.  Essentially, you’re saying, “you do the work and we’ll continue to pay you”

This is where things can get complicated and misinterpreted, especially with CEST and HMRC’s IR35 guidance.

With IR35, a contracting business will be engaged for a fixed assignment.  Their contract should always give them the right to decline an “offer of work” (whether new assignment or extension).  Perhaps culturally, this is where clients and contracting businesses have got muddled, as it’s all to convenient for both parties to renew, however the parties are creating a mindset that if as a client you offer work, the contracting business will always accept.  This is wrong and must stop.

To be clear, for MOO to exist in respect of IR35, this means that if a client offers the contracting business work (whether a new contract, an extension or an additional assignment) then the contracting business is obliged to accept it.  Any other definition when it comes to IR35 is wrong and should be ignored.

So, if as a client, even if you choose to offer more / new work or even feel compelled to offer your contracting business more work, if your contracting business has the right not to accept the offer, then MOO does not exist.  No debates.

To summarise, to stay outside of IR35:

  • Be clear of the assignment and terms of engagement
  • Have a SOW that protects both parties
  • Stick to the SOW and do not pad-out engagements with additional work, unless both parties agree to a new SOW
  • Avoid any early renewal discussions or misleading conversation about continuous flow of work or contracts (it’s tempting if a project timeline far exceeds an engagement period)
  • Allow contracting businesses to substitute workers
  • Let your experts be experts and deliver against the assignment as they feel best

Whilst there are no guarantees when it comes to HMRC, do these things and have a culture and support model for your engagement managers that fosters these good practices and you should be safe with your outside IR35 determinations.


I am not an IR35 expert.  I am not offering legal or tax advice; merely my opinion.  I have spent over 20 years working in large corporations and hired and managed employees, contractors and procured third parties using SOWs.  I have genuinely needed inside IR35 workers and outside IR35 workers in my time.   I have read and re-read latest guidance many times and counselled many differing professional groups.  I do recommend that if you are not sure, should you need definitive legal guidance, then you should seek it.