IR35 reform kicker (2): how contracts can thwart outside IR35 status before the work’s even begun

It’s been with UK contracting in one form or the other for the last 20 years, but it still bears repeating that with IR35, it’s vital that the contracts used to record the arrangements accurately, fairly, and correctly reflects what the client/hirer and the contractor genuinely intend, writes Adrian Marlowe of Lawspeed.

Why ‘IR35-friendly’ contracts didn’t /don’t work…

As tempting as it might seem, it’s absolutely no use approaching the contractual question of off-payroll working from a legal or tax perspective, as the application of IR35 tax results from the arrangements and cannot be designated or specified in the contract.

This is why so-called ‘IR35 friendly’ contracts that some advocated back in year 2000 (when the Intermediaries legislation was first introduced) which contained short, bare statements such as “There is no mutuality of obligation” or “The contractor may use a substitute” simply didn’t work.

Back then, and now with 2024-25 underway, the contracts must always contain a true reflection of arrangements that are ‘outside IR35’ if HMRC tax risk is to be avoided.

Key clauses for outside IR35 contractors to avoid – ‘time and materials’

So what kinds of clauses should your contract contain if you’re an outside IR35 contractor, and which clauses should be avoided?

For arrangements to be outside IR35, simply contracting for a period of time (‘time and materials’) won’t work. There’s a big difference between a time basis and a delivery basis despite the fact that the skillset deployed may be exactly the same. An engagement for one month, for example, implies that the contractor should do as requested during the month.

Contrast this, with hiring a contractor to do a piece of specified work, which may only take a month.

‘Attendance’ and ‘time’ clauses are must-haves for inside IR35

Well, the former arrangement is more likely to be inside IR35 and the latter arrangement outside IR35. So specifying a period of hire in the contract is risky, whereas specifying an anticipated period for completion of the work is less so.

And to be clear, there is no problem with specifying times for milestones or completion -- so long as the subject is completion of the work, not attendance and time.


Assuming the contract is about delivery rather than time and materials, termination provisions are very much among the clauses to watch out for. Termination without cause by either party is likely to indicate a ‘time and materials’ contract, regardless of any other provisions. These types of clauses are to be avoided. On the other hand, termination for failure to deliver points to a breach of a project contract, and should therefore be acceptable to an outside IR35 contractor, as it indicates the acceptance of business ‘risk.’


Substitution clauses should also be regarded carefully.

Only the contractor will know whether he/she has access to a substitute and so a provision in a contract provided by a hirer or agency that allows the contractor to substitute may look good and tick a box in the minds of those who advocate the supremacy of substitution clauses -- but in reality they simply indicate an intention to avoid tax!

In ‘contracting,’ it’s a hard fact that most hirers want the services of the particular individual and don’t want that individual to get someone else to do the work.

Agencies supplying contractors have problems with this also due to regulatory requirements. Therefore not only is there no advantage to having a substitution clause in a contract unless it is actually realistically agreed that the contractor can deploy a substitute, but also it creates a red flag for HMRC.

Any Supervision, Direction or Control (or just a hint of SDC) = IR35 fail

Last but not least, control-type clauses. It almost goes without saying that a clause that entitles the hirer to exercise direction or supervision or control is an absolute no-no.

However it’s worth a mention here, because so many hirer-contracts either specify one or more of these elements, or allude to an obligation by the contractor to do what the client wants on an ongoing basis. This implies a ‘time and materials’ arrangement, not a project delivery basis. Forget all the arguments about what Supervision, Direction or Control means in legal terms; take it as read that the simple imposition of those kinds of clauses is enough to bring on the application of IR35.

IR35 contractual best-practice, in a nutshell…

The above highlights some of the key points that a limited company contractor (and indeed such a contractor’s hirer) should consider. If there is a project, specify it and set up the contractual arrangements to reflect it, making sure that, if there is a chain of supply, all contracts reflect this. Otherwise accept that IR35 is likely to apply and contract in the full knowledge of being caught by the rules.

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Written by Adrian Marlowe

Adrian is a specialist lawyer, founder and CEO of the recruitment law consultancy Lawspeed ( as well as chairman of the Association of Recruitment Consultancies ( Lawspeed has been servicing the recruitment sector since 1997; its clients are hirers, recruitment businesses and contractors interested in contract terms, compliance, IR35 and other regulatory advice.
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