IR35 evidence without the paranoia

Off-payroll working has been a fact of UK contracting life for long enough that most clients now know the rough shape of the rules. What they have not always absorbed is that an outside-IR35 determination cannot be manufactured by paperwork after the fact. The evidence pack is a record of working practices that are already true. If the practices are not true, no quantity of contractual language will protect either side when HMRC asks.

We work outside IR35 on the engagements where the working practices genuinely support that determination, and we are willing to work inside IR35 on the engagements where they do not. The conversation about which one applies belongs at the start of the engagement, not three months in when the first invoice is being queried by procurement.

What HMRC actually looks at

The status determination rests primarily on three factors: the right of substitution, the degree of control the client exercises over how the work is done, and the mutuality of obligation between client and contractor. Other factors matter — financial risk, integration into the client's organisation, equipment provision — but those three carry the weight in most assessments.

Each factor is a working practices question, not a contractual one. The contract describes the intent. The practice is what HMRC will examine if it ever comes to it. A contract that says 'the contractor may provide a substitute' is worth nothing if the contractor has never done so and could not credibly do so. A contract that says 'the contractor controls how the work is done' is worth nothing if the contractor sits in the daily stand-up and takes direction from the client's engineering manager.

The implication is that the evidence pack must be a description of practice, supported by contemporaneous artefacts, not a description of intent supported by a signed agreement.

Substitution must be real

Substitution is the factor that most contractors and most clients get wrong. The right of substitution is meaningful only if substitution is genuinely possible and could be exercised without the client's veto on identity.

If the engagement is for a specific named individual whose specific track record is the reason they were hired, substitution is not realistic. The client would not accept a substitute, and the contractor would not propose one. Pretending otherwise in the evidence pack is worse than acknowledging the factor is weak — because it invites HMRC to question the credibility of the rest of the pack.

The honest position in most senior interim engagements is that substitution is a weak factor. The other factors then have to do more work. Specifically, control and mutuality of obligation have to be clearly on the contractor's side, supported by visible practice. We have signed off on outside-IR35 engagements where substitution was effectively zero and the determination still held, because the other factors were unambiguous.

Control is about how, not what

Clients often confuse control of outcomes with control of method. The client absolutely controls the outcomes — what the engagement should deliver, by when, to what standard. That is the brief. Control of method is different. The client should not be telling the contractor which days to work, which hours to keep, which tools to use, or which sequence to perform the work in.

In practice this means the contractor sets their own working pattern, attends client meetings as appropriate to the engagement rather than as a default, and is not subject to performance management of the kind applied to employees. If the contractor is appearing in the client's HR system as a quasi-employee — annual leave tracked, weekly time sheets reviewed by a line manager, performance ratings — the working practices are pointing inside IR35.

The remedy is rarely contractual. It is operational. Move the contractor out of the daily stand-up unless attendance is genuinely necessary for the work. Cease the timesheet-as-line-manager-approval pattern and replace it with milestone-based sign-off. Stop asking the contractor to attend the client's all-hands.

Mutuality of obligation is about future work

Mutuality is the most subtle of the three factors. It asks whether the client is obliged to provide ongoing work and whether the contractor is obliged to accept it. In an employment relationship, mutuality is high — the employer must keep providing work and the employee must keep performing it. In a contracting relationship, mutuality should be confined to the specific scope of the engagement.

The practical test is what happens at the end of the contracted scope. If the default expectation is that the engagement rolls into another piece of work without a fresh contracting decision on both sides, mutuality is high and the relationship is starting to look like employment. If each scope is contracted explicitly, with a real possibility of either side declining the next piece, mutuality is low.

Long engagements are not automatically a problem. Long engagements that drift into open-ended retention without scope-by-scope contracting are. We treat any engagement extending beyond twelve months as needing a fresh status review, even if nothing else has changed.

The evidence pack itself

Once the working practices are right, the evidence pack is short. A two-page status determination summary referencing the three primary factors, with specific examples from the engagement supporting each. An index of artefacts — contract, statement of work, milestone sign-offs, examples of independent decision-making, examples of refused work, examples of contractor-set scheduling. The artefacts themselves stored in a single location, dated, with no gaps.

We refresh the index at the start of every quarter. New artefacts are added, stale ones are noted as superseded. The index is kept lightweight deliberately. A thick binder updated once a year is worse than a thin index updated every quarter, because the thick binder usually contains material that does not match current practice.

If HMRC asks, the evidence pack is what we hand over. If HMRC does not ask, the evidence pack still does its job — it forces us to keep the working practices honest, because we know we will be reviewing them every quarter.

When inside IR35 is the right answer

Sometimes the working practices genuinely sit inside IR35. The engagement is hands-on, embedded, ongoing without a clear scope boundary, and the client wants the contractor in the daily rhythm. That is a perfectly legitimate engagement structure. It is not an outside-IR35 engagement.

We will work inside IR35 on those engagements. The day rate adjusts to reflect the additional tax burden, the contracting structure adjusts to reflect the determination, and everybody proceeds with clear eyes. Pretending an inside engagement is outside is the worst of both worlds. It exposes the client to a determination challenge it will lose, and it exposes the contractor to a back-tax assessment they cannot defend.

The conversation about which side of the line the engagement sits on belongs at the contracting stage. We have walked away from engagements where the client wanted an outside determination but the working practices clearly pointed the other way. That is the test of a serious contracting relationship — both sides are willing to look at the practices honestly and structure accordingly.