Offpayroll Working Ir35

IR35 – The key factors to understand

Back to Blogs

IR35 – The key factors to understand

  • Publish Date: Posted over 4 years ago
  • Author: IR35 Team

​When it comes to assessing IR35, HMRC will assess End Clients based on a number of key factors to understand how the contractor is engaged. We take a look at them in more detail below.

Mutuality of Obligation

Mutuality of Obligation refers to whether a client is obliged to offer work (and pay the contractor) and if the contractor is obliged to take it. If this were the case it would be deemed to be a contract of service (employment).

It goes without saying that as a contractor, the relationship with a client is purely to deliver a service. A Limited Company should deliver this service without expecting any additional work after their assignment is complete.

Supervision, Direction and Control

HMRC looks at how the contractor is managed during their assignment. As they have been commissioned as an external contractor, HMRC would expect them to work independently from the End Client – undertaking the services they have been contracted to deliver relatively autonomously. If End Clients want to directly supervise a PSC contractor on a daily basis; specify precisely how the work is carried out; or set-up line management reporting, then this could be deemed too similar to direct employment.

Right of Substitution

Right of substitution is where a Limited Company contractor is permitted to put forward a substitute to deliver the service they are contracted to deliver if they are unable to do so. It’s important to remember here that the Limited Company is providing a service to the End Client and doesn’t work directly for them – so this would ensure that the service continues to be delivered in their absence.

HMRC’s CEST tool will ask End Clients whether they have the right to reject a substitute, even if they are a suitable qualified and vetted alternative.

Financial Risk

HMRC would expect a Limited Company to carry a certain amount of financial risk in their position as a business owner. Perhaps there are financial penalties attached to not completing services on time, they will need to return to correct any issues at their own cost or they are expected to provide things such as heavy equipment at their own expense.

Part and Parcel

As an external worker, the contractor should not be seen as part of the business – this includes everyday working practices such as parking in staff car parks, attending social events and receiving benefits like permanent employees.

To prepare for the IR35 reform in the Private Sector businesses will need to review and audit their off-payroll workers, to better understand how they are engaged. If challenged, HMRC will be looking to see that reasonable care was taken when making a status determination, so it’s crucial that Hiring Managers fully understand IR35.

Find out more

If you’d like to arrange an IR35 contractor workforce review then contact NRL at or find out more on the link below.

Specialist Ir35 Advice

Looking for work?

Related articles