IR35 contract reviews

An IR35 contract review examines the terms of a contract and the proposed working arrangements to assess whether an engagement is likely to fall inside or outside IR35.

The purpose of a review depends on whether the engagement falls under Chapter 8, where responsibility normally rests with the contractor’s intermediary, or Chapter 10, where responsibility usually sits with the end client.

Recommended IR35 contract review

What is an IR35 contract review?

An IR35 contract review is an independent assessment of the contractual terms governing an engagement.

The reviewer will consider whether the agreement supports a genuine business-to-business relationship or contains provisions more commonly associated with employment.

A basic review may look only at the terms of the written contract. A more detailed service will also consider the relevant circumstances and evidence surrounding the engagement, usually through a questionnaire or interview.

This is an important distinction. In IR35 tax cases, the contractual terms must first be established using ordinary principles of contractual interpretation before the employment status tests are applied to the resulting hypothetical contract. Other relevant evidence and circumstances may also be considered where appropriate.

Who is responsible for the IR35 decision?

The answer depends on which part of the legislation applies.

Chapter 8: the contractor’s intermediary is responsible

Where a contractor supplies services through a limited company to a small non-public-sector client, responsibility for applying the IR35 rules normally remains with the contractor’s intermediary.

A review can help identify any weak clauses, test the proposed contractual arrangements and provide evidence of how the status decision was reached.

It is particularly useful before:

  • Signing a new contract.
  • Renewing an existing engagement.
  • Moving onto a different project.
  • Accepting a material change in duties.

See our guide to the small company exemption.

Chapter 10: the client normally decides

For medium and large non-public-sector organisations and public authorities within the scope of the rules, the client is responsible for determining status under the off-payroll working rules.

The client must assess the engagement with reasonable care and issue a Status Determination Statement stating its conclusion and the reasons for reaching it.

Clients may use external reviewers to help with this process. Contractors may also obtain their own opinion where they disagree with an SDS or want to use the client’s status disagreement process.

What does a contract review check?

Most reviews focus on the employment status factors developed through case law.

These normally include:

The reviewer may suggest amendments where the wording is unclear or does not reflect the intended arrangement.

Our guide to IR35 contract clauses shows the types of wording commonly examined during a review, including substitution, control, scope of work, further work and financial risk.

For a quick first pass on an individual provision, the IR35 Clause and Reality Checker lets you compare the wording with the practical arrangement before deciding whether a full professional review is needed.

That does not mean inserting standard outside-IR35 clauses into every contract. Any revised terms must form part of the genuine contractual agreement between the parties.

Why the contract and surrounding evidence both matter

A well-drafted contract is important to an outside IR35 engagement, but it is not conclusive on its own.

During a compliance check, HMRC may examine the written agreement alongside other relevant evidence to establish the true contractual terms and apply the employment status tests.

A contract might, for example, contain a broad substitution clause. The significance of that clause depends on whether it forms part of the genuine contractual agreement and what restrictions apply to the right. The fact that a substitution right has never been exercised does not, by itself, make it irrelevant.

The same applies to control. The client’s contractual rights of control can be important even where those rights are not routinely exercised in practice.

In tax status cases, contractual terms are established using ordinary principles of contractual interpretation. The special approach applied in some worker-rights cases cannot simply be used to disregard genuine contractual terms because observed arrangements appear different.

See our guide to Autoclenz v Belcher.

A review that considers both the contract and the relevant evidence and circumstances surrounding the engagement is therefore usually more useful than a document-only check.

Contract review, working practices review or IR35 audit?

The terms overlap, but the services are not always the same.

Contract review

This focuses mainly on the written agreement.

The reviewer checks whether the clauses support the intended status position and highlights terms that may create risk.

Working practices review

This looks at the relevant circumstances and evidence surrounding the engagement.

It usually covers control, substitution, supervision, equipment, financial risk and the contractor’s wider business activity.

IR35 audit

An IR35 audit is a far wider review of how an organisation operates its off-payroll responsibilities.

It may examine several engagements, internal procedures, supporting records, SDS processes and the way status decisions are made across an organisation.

Does a favourable review guarantee outside IR35 status?

No.

A review is a professional opinion based on the contract and the information supplied at the time.

HMRC is not bound by it. Nor does it prevent HMRC from opening an IR35 enquiry or reaching a different conclusion.

The opinion may also become outdated if the contractual terms, duties or other material circumstances of the engagement change.

Under Chapter 10, the use of an external adviser does not automatically prove that the client has taken reasonable care. The client must still consider the relevant facts and act appropriately on the advice received.

Under Chapter 8, a review can support the intermediary’s decision, but it does not transfer statutory responsibility to the reviewer.

When should a contract be reviewed?

The best time is before the contract is signed.

That gives the parties an opportunity to correct unclear wording or resolve practical issues before the work begins.

A fresh review may also be sensible where:

  • The contract is renewed or extended.
  • The contractor moves to a new project.
  • The scope of the services changes.
  • The client’s contractual rights or practical arrangements change materially.
  • A new agency enters the contractual chain.
  • The client issues an inside-IR35 SDS that the contractor disputes.

An outside IR35 opinion on one engagement should not automatically be carried across to another.

Not all contract review services offer the same level of analysis.

Some assess only the written contract. Others consider both the agreement and the relevant evidence and circumstances surrounding the engagement.

Before ordering a contract review, check whether the service includes:

  • A review of the written contract.
  • A working practices or engagement assessment.
  • Both the agency and client agreements, where relevant.
  • Clause-by-clause analysis.
  • Suggested amendments where appropriate.
  • A detailed written report.
  • A further check after contractual changes are made.
  • Support if HMRC later opens an enquiry.

Qdos Full IR35 Contract Review

We recommend the Qdos Full IR35 Contract Review for limited company contractors who want both their written contract and proposed working arrangements assessed.

The service provides a clause-by-clause analysis of the contract, an assessment of the engagement and an overall opinion on its IR35 status.

Where Qdos identifies potentially problematic terms, the report includes recommendations for positive changes.

The review includes:

  • A comprehensive assessment of the written contract.
  • A working practices review based on a questionnaire.
  • An overall IR35 status opinion.
  • Commentary on each relevant contractual clause.
  • Recommendations where changes may be appropriate.
  • Relevant contractual insurance requirements highlighted.

The standard price is £125 + VAT per contract.

Standard turnaround is 3–5 working days from receipt of the required documents and completed working practices questionnaire.

Faster options are also available:

  • Next business day: an additional £50 + VAT.
  • Same business day: an additional £100 + VAT, subject to the required documents being supplied by the stated deadline.

Qdos has assessed more than 150,000 engagements for IR35 status over the past two decades.

The service is intended for limited company contractors, and the price applies on a per-contract basis.

Order an IR35 contract review from Qdos

How much do IR35 contract reviews cost?

A number of other specialist firms, including Kingsbridge, Bauer & Cottrell, Brookson Legal, The Law Place and Lawspeed, provide IR35 contract review services.

The cost depends on the depth of the assessment and whether the reviewer considers the written contract alone or also examines the relevant evidence and circumstances surrounding the engagement.

A basic document review will usually cost less than a combined contract and engagement assessment.

Contract review specialists charge from £100 to several hundred pounds for a full review, which may include a review of the written agreement, a working practices assessment, a detailed report and an overall IR35 status opinion.

Providers may charge separately for:

  • The initial contract assessment.
  • A working practices questionnaire.
  • A written report.
  • Negotiating amendments.
  • Reviewing the revised contract.
  • Speaking directly to the agency or client.

Some contractor memberships, legal support packages and insurance products include a ‘free’ review, although the scope of the review is more important than the headline price.

The quality of a low-cost automated check does not compare to that of a manual review of the contractual terms and the relevant circumstances of the engagement.

IR35 contract review or IR35 insurance?

They deal with different parts of the risk.

A contract review assesses the engagement before or during the work.

IR35 insurance can provide support if HMRC later opens an enquiry. Depending on the policy, it may cover professional representation and, in some Chapter 8 cases, the resulting tax liability, interest and penalties.

A favourable review does not replace insurance.

Insurance does not make an unsuitable engagement outside IR35.

Some insurers also require a contract or engagement assessment before offering more comprehensive cover.

What should you keep after the review?

Keep the final report and the information supplied to the reviewer.

You should also retain:

  • The signed contract and schedules.
  • Earlier drafts showing agreed changes.
  • The working practices questionnaire.
  • Relevant emails with the client or agency.
  • Any Confirmation of Arrangements letter.
  • Evidence relevant to substitution, financial risk or project-based delivery where appropriate.
  • Notes explaining any later material changes to the engagement.

These records may help explain how the original status decision was reached if HMRC examines the engagement several years later.