IR35 checklist for IT contractors: The three tests that determine your status

IR35 determines whether HMRC treats you as an employee of your client for tax purposes, or as a genuine independent contractor. Getting it wrong — in either direction — is expensive. Here is what the three key tests actually mean in practice.

This guide is for informational purposes only and does not constitute tax or legal advice. IR35 determinations are fact-specific legal questions — always get specialist advice for high-value or ambiguous contracts.

Why IR35 status matters

If you are inside IR35, you pay Income Tax and National Insurance as if you were an employee — but without the employment rights. The financial impact is significant: a contractor earning £600 per day outside IR35 via a Ltd Co might take home £50,000–£60,000 more per year than the same contractor inside IR35, depending on their structure.

Since April 2021, medium and large private sector clients have been responsible for determining IR35 status. For small clients, the contractor's limited company determines status. But even where the client determines status, you need to understand the tests to challenge incorrect determinations and maintain your own records.

Test 1: Substitution

Can you send a substitute — someone other than yourself — to do the work if you are unavailable? A genuine right of substitution, that the client cannot unreasonably refuse, is the single strongest indicator of outside IR35 status.

Key questions:

• +Does your contract explicitly grant a right of substitution?
• +Has the client approved or would they accept a substitute in practice?
• +Do you bear the cost of the substitute (i.e., you pay them, not the client)?

HMRC gives weight to whether a substitution has actually occurred or is genuinely possible — not just whether the contract says so. A clause that says substitution is permitted but requires client approval for any reason effectively negates it.

Test 2: Control

Does the client control what you do, how you do it, when you do it, and where you do it? A genuine contractor controls their own working methods. An employee is directed by their employer.

Key questions:

• +Are you told when to work (fixed hours, mandatory attendance)?
• +Are you told how to do the work, or do you choose your own methods?
• +Are you embedded in the client's team, using their equipment and email address?
• +Do you have the right to work for other clients simultaneously?

Control is assessed holistically. A contractor who sets their own hours, works from their own equipment, chooses their own methods, and can work for other clients simultaneously is demonstrating the control indicators of genuine self-employment.

Test 3: Mutuality of Obligation

Is the client obliged to offer you work, and are you obliged to accept it? Genuine contractors take on specific projects with defined deliverables — there is no general obligation to be available, and no obligation for the client to keep finding you work.

Key questions:

• +Is your engagement defined by a specific project or deliverable?
• +Does the client expect you to be available for general tasks beyond the contract scope?
• +Are you expected to attend regardless of whether there is substantive project work?

Other factors HMRC considers

Beyond the three main tests, HMRC also looks at:

• +Financial risk: Do you bear financial risk (e.g., you fix defects at your own cost)?
• +Part and parcel: Are you integrated into the client organisation (attending management meetings, appearing on org charts)?
• +Equipment: Do you provide your own equipment?
• +Exclusivity: Are you prohibited from working for other clients?

Building your evidence base

For each contract, log your evidence at the time — not retrospectively. Record:

• +The IR35 status determination and how it was reached
• +The CEST tool outcome (if used) and the date it was run
• +Your right of substitution status and any practical examples
• +Notes on working practices — hours, equipment, where work is performed

If HMRC enquires years later, contemporaneous records matter significantly more than reconstructed ones.