IR35 Contract Clauses: What to Check Before You Sign

IR35 is, at its core, a status question: are you genuinely self-employed, or are you effectively an employee operating through a limited company? The answer has significant tax consequences — potentially tens of thousands of pounds in backdated PAYE and National Insurance contributions if HMRC decides you have been misclassified.

What most contractors do not appreciate is how much the wording of their contract matters. HMRC and the courts do not simply take your word for your status. They look at the actual terms you agreed to — and if those terms look more like employment than self-employment, the tax treatment follows, regardless of what you intended.

The three tests HMRC applies

Employment status for IR35 purposes is assessed against three primary factors, each of which has a direct counterpart in your contract wording.

The first is substitution — whether you have a genuine right to send someone else to do the work. The second is control — the degree to which the client directs how, when, and where the work is done. The third is mutuality of obligation — whether either party is obliged to offer or accept ongoing work.

Each of these maps onto specific clause types. Getting them wrong — even in one provision — can undermine an otherwise compliant contract.

The substitution clause

A genuine right of substitution is one of the strongest indicators of self-employment. If you can send a suitably qualified colleague to complete the engagement, you are not providing personal service — and personal service is a hallmark of employment.

The key word is genuine. A substitution clause that requires client consent before any substitute can be used is weaker than one that permits substitution freely, subject only to reasonable skill requirements. HMRC takes the view that a consent requirement is not a true right of substitution — it is a right subject to veto.

A clause reading "The Contractor may not appoint a substitute without the prior written consent of the Client" is a significant IR35 risk indicator. A better formulation gives you the right to substitute any individual with equivalent qualifications, with the client's consent not to be unreasonably withheld.

An absolute prohibition — "services must be performed personally by [your name]" — is an almost certain IR35 flag. If your contract contains this wording, the substitution test points firmly toward employment.

Control clauses

Control is about who decides how the work gets done. In genuine self-employment, you determine your own methods. The client specifies what they want delivered; you decide how to deliver it.

Problematic control clauses include those requiring you to work fixed hours at the client's premises, to use only the client's equipment and systems, to obtain approval before each stage of work is commenced, or to comply with the client's internal HR policies including performance management processes.

Any clause that subjects you to the client's day-to-day direction — rather than simply specifying the deliverable — is an IR35 risk. The distinction is between specifying the outcome and specifying the method.

Mutuality of obligation

Mutuality of obligation asks whether there is an ongoing commitment on either side — whether the client must offer you work, or you must accept it. Employment is typically characterised by this mutual expectation. Genuine self-employment is project-based and terminable.

Contracts that include clauses guaranteeing a minimum number of hours or days, or that describe an ongoing retainer without clear project scope, can create mutuality of obligation. Similarly, notice periods that mirror employment notice — particularly those expressed in weeks rather than project milestones — suggest an ongoing employment-like relationship.

Exclusivity clauses and IR35

A clause preventing you from working for any other client during the engagement is a significant IR35 indicator. True contractors are free to take multiple clients. An exclusivity obligation places you in a position more analogous to an employee who is expected to give their full professional attention to a single employer.

If exclusivity is commercially necessary for the client, it should be accompanied by a substantial rate premium and a clear time limit. Open-ended exclusivity with no compensation is both an IR35 risk and a commercially poor position.

What "outside IR35" in a contract actually means

Since the off-payroll working reforms of April 2021 in the private sector, the responsibility for making an IR35 determination has shifted to medium and large clients. You may receive a Status Determination Statement declaring that your engagement is "outside IR35." This is helpful — but it does not guarantee that your contract actually supports that determination if HMRC investigates.

HMRC looks at the reality of the working relationship, not just the stated determination. If your contract contains employment indicators — personal service requirements, strong control clauses, exclusivity — the determination may be challenged even if the client made it in good faith.

What to do before signing

Read your contract specifically for the three tests: substitution, control, and mutuality. If any provision directly undermines your self-employed status, raise it before signing. Most professional clients are familiar with IR35 and will engage with reasonable requests to amend problematic clauses.

Keep a record of the contract you actually sign, any subsequent amendments, and any correspondence about your working arrangements. If HMRC ever investigates, the contractual record is the starting point.

If your engagement is significant in value or duration, a contract review by a solicitor familiar with IR35 is money well spent. The cost of professional advice is significantly less than the cost of a successful HMRC challenge.