IR35 and Contractor Contracts: What Your Contract Needs to Say

IR35 determines whether HMRC treats you as an employee or a genuinely self-employed contractor for tax purposes. Your contract is an important part of the evidence.

Who decides depends on your client. If your client is medium, large or in the public sector, the client decides your status and must tell you in writing. If the client is small, you decide through your own company. From 6 April 2026, the small-company test uses higher limits: up to £15m turnover, £7.5m balance sheet total and 50 employees (two of the three must be met), so more clients now count as small.

The three IR35 tests

HMRC considers: substitution (can you send someone else to do the work?), control (does the client control how you work?), and mutuality of obligation (is the client obliged to offer work?). No single factor decides it, and HMRC looks at how you really work as well as what the contract says. Your contract should reflect your real working arrangement.

The substitution clause

A genuine right of substitution is one of the strongest indicators of outside-IR35 status. You should have the right to send a suitably qualified substitute, at your own expense, without the client being able to unreasonably refuse.

Control clauses

Your contract should state you control how services are delivered. “The contractor will determine the method of working” is better than “the contractor will work as directed.”

Mutuality of obligation

Include a clause stating neither party is obliged to offer or accept further engagements. The contract should not guarantee you a minimum amount of work.

Language to avoid

Avoid employment-flavoured terms like “working hours,” “annual leave,” or “line manager.” Use “services,” “deliverables,” “engagement period,” and “fees.”