Some IR35 problems are written into a contract before the work even starts.
The contractor’s agreement with an agency may contain a right of substitution, while the agency’s agreement with the client names the individual and requires their personal services. A project schedule may list deliverables, only for another clause to let the client allocate any other duties it chooses.
The individual clauses might look favourable when read alone. Read together, they describe something quite different.
The examples below cover the terms most often examined during an IR35 review. They show how a genuine business-to-business arrangement might be recorded, but they are not standard clauses to paste into every contractor agreement. The wording must match the service being supplied and the rights actually agreed by the contractor, agency and client.
The complete contractual chain matters. That includes the contractor-company agreement, the agency-client agreement, any project schedule or Statement of Work and changes agreed after the engagement begins.
The written terms also need to be checked against what happened in practice. HMRC’s guidance at ESM0510 identifies three possible explanations for a difference: the parties changed the agreement, the term was a sham or pretence, or a genuine contractual right existed but was never used.
The main IR35 clauses at a glance
| Clause | What a genuine B2B contract often records | Terms that need attention |
|---|---|---|
| Substitution | The contractor’s company chooses and pays a suitably qualified replacement and remains responsible for the work. | The client has an unrestricted veto, the right only applies in narrow circumstances or somebody else must supply the replacement. |
| Control | The client specifies the required result while the supplier decides how the work is organised and carried out. | The client can allocate daily duties, direct the working method or move the contractor between projects. |
| Scope of work | The contract identifies the services, deliverables, timetable and any acceptance criteria. | The contractor must carry out any work the client considers necessary. |
| Further work | Work outside the agreed scope requires a separate agreement or written variation. | The contractor must remain available for additional tasks throughout the engagement. |
| Financial risk | The supplier carries genuine costs and puts its own defective work right without further payment. | The contractor is paid for all time spent, including time used to correct their own mistakes. |
| Other clients | The supplier remains free to serve other clients, subject to reasonable confidentiality and conflict restrictions. | A broad exclusivity clause prevents the company from carrying on other business. |
| Integration | The contractor remains outside the client’s employment structure and employee procedures. | The individual is treated as part of the client’s staff, line-management structure or employee processes. |
Substitution
Substitution goes to the requirement for personal service. A client that has contracted for one named individual is in a different position from a client that has engaged a company which can supply suitable personnel.
Example substitution clause
The Supplier may, at its own expense, provide a suitably qualified and experienced substitute to perform the Services. The Supplier shall remain responsible for the Services and for the remuneration and conduct of any substitute. The Client may reject a proposed substitute where it has reasonable grounds relating to qualifications, experience, security clearance or the requirements of the Services.
Under this clause, the supplier chooses and pays the substitute. The client can reject somebody who lacks the required skills, experience or clearance, but does not have an unrestricted right to insist on the named contractor.
The same right needs to survive the rest of the contractual chain. A carefully drafted substitution clause between a PSC and an agency is of little use if the agency-client agreement names one individual and requires that person to perform the work.
Be wary of wording which makes substitution simply “subject to client approval”. Approval limited to matters such as skills, experience and security may be consistent with a genuine right. An unrestricted veto is very different.
Check both contracts: in MKM Computing Ltd v HMRC, MKM’s agreement with the agency allowed it to provide a replacement. The client, LGL, regarded the arrangement as one for Martin Ellwood’s services and did not accept that it had to take whoever MKM supplied.
A substitute does not have to have been used. The right itself can carry weight if it is genuine. HMRC sets out the questions it asks about personal service in ESM0530.
Our guide to substitution and IR35 looks at the evidence behind the clause.
Control
Control is wider than technical supervision. The review should consider who decides what work is done, where and when it is done and how the work is carried out.
Example control clause
The Client shall specify the required deliverables, acceptance criteria and applicable deadlines. Subject to those requirements and to the Client’s security and site-access rules, the Supplier shall determine how the Services are performed, the order in which the work is undertaken and the personnel used to provide the Services.
The client sets the result, deadlines and acceptance criteria. The supplier organises the work needed to deliver it.
That division can be undermined elsewhere in the contract. A clause allowing a client manager to allocate tasks, change duties or move the contractor between projects may point to a much wider right of control.
Check the upper contract too: rights to allocate tasks, set working hours or move the contractor between projects may appear in the agency-client agreement even where the PSC contract looks much cleaner.
Experienced contractors are often left alone on technical matters because they know more about the work than the person who engaged them. Technical freedom is not the same thing as an absence of control. The client may still hold extensive rights over hours, location, priorities or the work the contractor is required to perform.
Gary Hughes had considerably more freedom in Marlen Ltd v HMRC. JCB decided what its projects needed and monitored progress, but Hughes organised his own engineering work, chose his hours and took holidays without entering the employee approval process.
See our full guide to control and IR35. HMRC deals with control over the work itself at ESM0520.
Scope of the work
Example scope clause
The Supplier shall provide the Services and deliverables set out in Schedule 1. Any material change to the scope, deliverables, timetable or price must be agreed in writing by the parties. The Supplier is not obliged to undertake services outside the agreed scope unless such a change has been accepted.
The schedule needs enough detail to identify the assignment. “IT consultancy services” or “project support” says very little about what the supplier has actually agreed to provide.
Problems often appear in broader clauses elsewhere in the agreement. Phrases such as “other duties as directed” and “such tasks as the client may require” give the client much greater freedom to deploy the individual as labour rather than hold the supplier to an agreed scope of work.
LGL allocated Ellwood’s work and could move him to another project when its requirements changed in MKM Computing. He worked a regular week while the client used his skills where they were needed. MKM was not responsible for delivering one defined result.
A Statement of Work can record the services, deliverables, price and acceptance process. The title means little if the document still describes an open-ended role.
Further work and mutuality of obligation
Example further-work clause
The Client is not obliged to offer the Supplier any services beyond those set out in the current Schedule, and the Supplier is not obliged to accept any further assignment. Any additional assignment shall require a separate written agreement.
This clause deals with work after or outside the current assignment. It does not remove the obligations already accepted for the work in hand.
In HMRC v PGMOL, the Supreme Court confirmed that a single engagement can contain the basic wage-work bargain needed for employment status to be considered. There does not have to be an obligation to offer or accept another engagement afterwards.
That did not make the referees employees. When the case returned to the First-tier Tribunal in 2026, the tribunal considered the remaining terms and circumstances and found that the individual match engagements were contracts for services rather than contracts of employment. Our 2026 PGMOL case update explains the final FTT decision.
For IR35 purposes, there is therefore little value in trying to “remove mutuality” from a live assignment with a clause saying that no future work has to be offered. The more useful question is what the contractor has actually agreed to do during the assignment: deliver identified services, or remain available for whatever work the client chooses to provide.
Our mutuality of obligation guide covers the subject in more detail. HMRC’s current position appears at ESM0543.
Payment and invoicing
Example milestone payment clause
The Supplier shall invoice the Client on completion of the milestones set out in Schedule 1. Payment shall become due following acceptance of the relevant deliverable in accordance with the agreed acceptance criteria.
Milestone billing can tie payment to completed work and expose the supplier to the cost of taking longer than expected, subject to delays or changes caused by the client.
That does not mean day-rate or hourly work points automatically towards employment. Time-and-materials arrangements are common in genuine consultancy work, particularly where the full scope cannot sensibly be priced at the outset.
The combination matters more than the charging method. A day rate alongside open-ended duties, client-directed hours and continuing task allocation looks very different from a day rate charged for specialist services carried out within a defined project.
A timesheet may simply record the amount to invoice. In another engagement, it may form part of a regular attendance arrangement under which the client buys the contractor’s time and decides how it is used.
Correcting defective work
Example rectification clause
Where the Services fail to meet the agreed specification because of an act or omission of the Supplier, the Supplier shall correct the defective work at its own cost and within a reasonable period. This obligation does not apply to changes requested by the Client or defects caused by information, systems or materials supplied by the Client.
This makes the supplier responsible for its own failure while excluding problems caused by the client or by a later change to the specification.
The financial risk needs to be real. If the contractor charges for every hour spent correcting their own mistakes, the clause creates little or no exposure in practice.
Risk can also arise from fixed-price work, bad debts, investment in the business and responsibility for other workers. Our financial risk guide looks at these points in more detail.
Equipment
Equipment is usually a secondary factor in an IT contracting review.
Example equipment clause
The Supplier shall provide the equipment and software normally required to perform the Services. The Client may provide equipment where this is required for access to its systems, data or premises, or to comply with its security policies.
There is nothing unusual about a client insisting that contractors use its laptop or other controlled equipment to access secure systems. Employees, contractors and external suppliers may all be subject to the same requirement.
Equipment becomes more relevant where the supplier provides something substantial and fundamental to the service. An ordinary laptop, mobile phone or small set of tools will usually carry far less weight. HMRC makes the same distinction in ESM0540.
Working for other clients
Example non-exclusivity clause
The Supplier may provide services to other clients during the term of this agreement, provided that doing so does not breach its confidentiality obligations or create a material conflict of interest.
The supplier remains free to conduct other business while protecting the client’s confidential information.
A contractor does not need several clients at the same time to work outside IR35. A substantial project may take up most or all of a small company’s available resources. The contractual question is whether the client obtained exclusivity or an ongoing right to the contractor’s availability.
Other engagements may also provide evidence that the contractor was operating an independent business. Following Atholl House, facts about that wider business generally need to have been known, or reasonably available, to the client before they enter the third-stage assessment. HMRC summarises the position at ESM0560.
Integration and client procedures
Example independence clause
The Supplier’s personnel shall not be entitled to employee benefits and shall not form part of the Client’s appraisal, disciplinary or grievance procedures. Nothing in this clause prevents the Client from applying site, safety, data-security or conduct rules to persons working on its premises or systems.
A contractor may need a security pass, attend project meetings and follow data-handling requirements. Those things do not necessarily make them part of the client’s workforce.
More telling signs include holding a staff title, reporting through the client’s line-management structure, appearing on internal staff lists or rotas, managing employees, being treated as generally available to client teams or entering the client’s appraisal and HR procedures.
Hughes worked alongside JCB employees in Marlen, but he did not enter its induction, appraisal, disciplinary or grievance procedures. JCB also treated him differently when its computers failed: employees remained at work and continued to be paid, while contractors were sent home without pay.
See our guide to part and parcel and integration.
Contract wording that needs a closer look
| Wording | Why it matters |
|---|---|
| “The Contractor shall perform such duties as the Client may require.” | The client can allocate work outside an identified project or agreed scope. |
| “A substitute may be supplied with the Client’s prior consent.” | The clause does not say whether the client can refuse without reason or who chooses and pays the substitute. |
| “Working hours are 9am to 5.30pm or as directed by the Client.” | The contractor must attend during fixed hours and the client retains a further right of direction. |
| “Holiday must be approved by the Client’s manager.” | Managerial approval resembles the client’s control over employee leave. Giving notice or coordinating dates around a project is different. |
| “The parties agree that the Contractor is self-employed and outside IR35.” | The label cannot change rights and obligations which otherwise describe an employment relationship. |
| “The Contractor may work for other clients with the Client’s permission.” | The client controls whether the contractor’s business can serve anybody else. |
When the paperwork and the engagement differ
A written right can remain valid without ever being used. Many contractors never need a substitute, for example, but that does not remove a genuine contractual right to provide one.
Where the paperwork and events point in different directions, the reason for the difference matters. The parties may have changed the agreement through their words or conduct. A term may never have represented the bargain they actually made. Or the right may have remained genuine but circumstances never required anybody to use it.
The Court of Appeal’s decision in Atholl House prevents the special Autoclenz approach from being transferred wholesale into an IR35 tax case. A written right cannot simply be ignored because it was never exercised. Ordinary principles of contractual interpretation, variation and sham still apply.
Useful evidence may include project schedules, emails, change requests, invoices and evidence from people who understood the arrangement. A Confirmation of Arrangements letter can help where it records the client’s understanding accurately. A standard document signed later which merely repeats outside-IR35 wording is much less useful.
Where different documents contradict each other, the reviewer needs to establish what the parties actually agreed and what rights the client held. More favourable wording in the PSC’s contract does not override inconsistent terms higher up the contractual chain.
If you want to sense-check a particular provision against the way the engagement actually works, our IR35 Clause and Reality Checker is a free guidance tool covering substitution, control, mutuality, project scope, financial risk and integration.
Contract reviews and the off-payroll rules
Where the off-payroll working rules in Chapter 10 apply, the client is responsible for determining the worker’s status and issuing a Status Determination Statement. The SDS must state the conclusion and give the reasons for it, and the client must take reasonable care when reaching that decision.
Small private and voluntary-sector clients are treated differently. Where the client qualifies as small, Chapter 10 does not apply and the worker’s intermediary remains responsible for considering the engagement under the original Chapter 8 IR35 rules.
A contract review can provide useful evidence for either process, but it does not replace the status assessment itself. The decision still needs to reflect the contractual chain and the engagement actually intended and operated.
Reviewing the whole agreement
A proper review should cover:
- the contractor-company agreement;
- the agency-client agreement;
- every Schedule or Statement of Work;
- subsequent variations and change requests;
- the rights each party understood it had; and
- the way the work was organised and delivered.
Personal service and control deserve close attention, but neither should be viewed in isolation. The reviewer must also consider the remaining terms and circumstances, including financial risk, integration and evidence that the contractor was operating an independent business.
Calling the engagement “self-employed” or “outside IR35” does not rescue a contract whose actual rights point the other way. Equally, a genuine commercial right should not be ignored simply because nobody happened to use it.
For a live, valuable or long-running engagement, an independent IR35 contract review should examine the contractual chain as a whole rather than search one document for favourable phrases.
The clauses above illustrate common employment-status issues. They are not model terms or legal advice. Contract wording should be drafted for the particular service and checked against the agreement reached by every party in the contractual chain.