Which contract clauses put a UK freelancer inside or outside IR35? (2026 checklist)

The off-payroll working rules, called IR35, make a contractor who works like an employee pay Income Tax and National Insurance like one. They sit in ITEPA 2003: Chapter 8 for small private-sector clients, Chapter 10 for public authorities and medium or large clients. They apply when you work through an intermediary and would have been an employee if engaged directly.

GOV.UK on off-payroll working (IR35) puts it this way: the rules apply if a worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly. A typical intermediary is a limited company the worker controls, often called a personal service company. The rules also reach partnerships and other intermediaries.

The statute is in the Income Tax (Earnings and Pensions) Act 2003:

• Chapter 8 — workers' services provided through intermediaries to small clients. Heading substituted from 6 April 2021 by the Finance Act 2020.
• Chapter 10 — workers' services provided through intermediaries to public authorities or medium or large clients.

If the rules apply and the worker is treated as employed for tax, the deemed employer deducts Income Tax and employee National Insurance from fees paid to the intermediary, and pays employer National Insurance to HMRC. The rules apply engagement by engagement. One contract can sit inside the rules and the next outside.

This page is England and Wales first. The tax statutes cited here are UK-wide. For the rest of a contractor paper, see What goes in a freelance or contractor agreement.

From 6 April 2021, public authorities and medium or large private-sector clients decide status. Small private-sector clients do not: the worker's intermediary decides, under Chapter 8. Size is tested against the Companies Act small-companies regime for the last filed year relevant to the tax year, not against the label on the purchase order.

GOV.UK for clients is the working map:

• Public authorities — always in Chapter 10, regardless of size. That includes government departments, local authorities, schools, universities and NHS bodies, with the Freedom of Information definition in ITEPA 2003 s.61L.
• Medium or large private and voluntary sector clients — they decide status and issue a Status Determination Statement.
• Small private and voluntary sector clients — they do not determine status. Chapter 8 leaves that with the worker's intermediary. They must confirm their size if the worker or the person they contract with asks.

When a company is small. ITEPA 2003 s.60A says a company qualifies as small for a tax year if the small companies regime in the Companies Act 2006 applies to its last financial year whose filing period ended before that tax year. GOV.UK for clients (checked 28 October 2026; page last updated 30 August 2024) treats a private-sector company as medium or large if it meets two or more of: annual turnover of more than £10.2 million; balance sheet total of more than £5.1 million; more than 50 employees.

Those Companies Act thresholds increased for financial years beginning on or after 6 April 2025, to turnover of more than £15 million and a balance sheet total of more than £7.5 million, with the 50-employee figure unchanged. HMRC's ESM10006A states that, for a usual 12-month financial year, the earliest tax year the transitional provision impacts a client is 2027/28. A simplified turnover-only test of more than £10.2 million applies to some unincorporated clients. Group rules pull subsidiaries in if the parent is medium or large.

Do not guess the client's size from its website. Ask. The paper should record whether the client is treating the engagement under Chapter 8 or Chapter 10.

A Status Determination Statement is the client's written conclusion on whether you would have been an employee if engaged directly, with reasons, reached with reasonable care. It must go to the worker and to the person the client contracts with. Until a valid SDS is given, tax and National Insurance sit with the client, not further down the chain.

ITEPA 2003 s.61NA is short. An SDS is a statement by the client that:

• states the conclusion on the condition in s.61M(1)(d) — whether the worker would be an employee or office-holder if engaged directly — and explains the reasons, or
• states (even if incorrectly) that the condition is not met, and explains the reasons.

A statement is not an SDS if the client failed to take reasonable care in reaching that conclusion. HMRC ESM10013 adds that advertising a role as inside or outside the rules is not, on its own, a valid SDS.

If you or the deemed employer disagree, s.61T is the client-led disagreement process. Make representations before the final chain payment. The client must, within 45 days of receiving them, either confirm the original conclusion with reasons, or issue a new SDS. Miss that window and the client's PAYE liability comes back to them.

Keep the SDS with the signed independent contractor agreement. If working practices change, the client has to look at status again.

HMRC applies the common-law employment tests, not a statutory IR35 scorecard. Ready Mixed Concrete requires personal service for pay, a sufficient right of control, and other terms consistent with employment. Mutuality of obligation and control are pre-conditions. After that the picture is multi-factorial: financial risk, equipment, being part and parcel of the organisation, and similar factors.

The Supreme Court in HMRC v Professional Game Match Officials Ltd [2024] UKSC 29 treats Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 as the starting point. Mutuality of obligation and a sufficient degree of control are necessary for a contract of employment. HMRC's ESM0515 then lists the factors used to paint the rest of the picture. It is explicit that status is not a checklist you add up.

The factors that actually move freelance papers:

• Personal service / substitution. An employee provides their own work. A genuine right to send a substitute, paid by you, points away from employment. HMRC's ESM0530 says it is the right that matters, not whether you have used it. An unlimited client veto can make the right look unreal.
• Control. Who decides what is done, how, when and where. PGMOL says the client does not need a right to intervene in every task. A sufficient framework of control is enough.
• Mutuality of obligation. The wage-work bargain: you provide personal service, they pay. PGMOL confirms that is enough during a single engagement. A promise of ongoing work on both sides is a further pointer, not the whole test.
• Financial risk. Do you price the job, bear defective work, provide equipment, carry insurance, and stand to profit from how you run the work? ESM0515 takes those from Market Investigations.
• Part and parcel. Whether you are built into the client's organisation — job title, staff meetings, employee benefits — or remain an outside business.
• Exclusivity. Not a named HMRC heading of its own. A clause that stops you taking other clients feeds control, part-and-parcel, and whether you are in business on your own account. See exclusivity clauseexclusivity clauseAn exclusivity clause stops one side working with other people in a named market, for a named time. In England and Wales a lock-out has to be for a fixed period: Walford v Miles [1992] 2 AC 128 is why an agreement to negotiate exclusively with no end date fails.More in the glossary.

HMRC's line in ESM0515, quoting Hall v Lorimer, is to paint a picture from the accumulation of detail and stand back. One strong substitution right does not rescue a contract that otherwise reads as employment.

No single clause decides status. Inside-risk wording is personal service with no substitute, client direction of methods and hours, a continuous obligation to offer and accept work, and employee-style pay. Outside-friendly wording is a genuine substitution right, control of method, fees for deliverables, and freedom to take other clients — if that is also how the engagement is actually run.

HMRC will not treat a well-drafted clause as a trump card if the working practices contradict it. The table is a drafting checklist, not a scorecard.

Example substitution clause

The Contractor may provide a suitably qualified substitute to perform the services. The Contractor remains responsible for the substitute's work and pays the substitute. The Client may reject a proposed substitute only on reasonable grounds of lack of skill, security clearance or conflict, and must give those grounds in writing. This is not an unlimited veto.

In Plain English: you can send someone else who can do the job, you pay them, and the client can only say no for a real reason they put in writing.

Put substitution in the assignment and subcontracting clause of an independent contractor agreement or freelancer agreement, not in a side email. Agree the wording on one shared draft so the SDS and the contract describe the same engagement.

Both. GOV.UK is explicit that whether the off-payroll rules apply to an engagement is determined by the terms and conditions and the working practices. A substitution clause the client would never allow in practice will not carry the status. If the way you work changes, the client has to look at the determination again.

GOV.UK for clients says an engagement is determined by the terms and conditions and the working practices. If working practices change, or you negotiate a new contract, the client must re-check whether the rules still apply. ESM10013 tells clients who subcontract the determination that they still need to take proper account of both the contractual terms and the working practices.

That is why a paper labelled "contract for services" does not decide the tax. The hypothetical contract Chapter 8 and Chapter 10 ask about is the one you would have had if the client had engaged you directly. Courts read the written terms in their factual matrix. HMRC's ESM0535 treats a substitution right as counting only if it is genuine.

The practical consequence: write the contract so it can be performed as written. If the client needs you on-site at set hours with no substitute, say so and expect an inside determination. If they need an outcome and you can send a substitute, write that, and then actually be able to send one.

CEST is HMRC's Check Employment Status for Tax tool. Anyone can use it — hirers, workers, agencies — to see HMRC's view of an engagement. HMRC will stand by the result if the information you give is accurate and matches its guidance. A CEST result can be used as a Status Determination Statement.

The official page is Check employment status for tax (CEST). You need a contract in place, or one expected — written, verbal, implied, or a mix. You will be asked about the worker's responsibilities, who decides what, when, where and how the work is done, how the worker is paid, and whether the engagement includes benefits or expenses.

HMRC will stand by all results given by the tool, as long as the information you give remains accurate and is in accordance with its guidance. After you finish you can save the answers and the result, and use that result as a valid SDS.

CEST is not a court. It cannot invent a substitution right the contract does not give you. Run it on the signed words and the working practices you actually have, not on the wording you wish you had agreed. If the client later tightens control, run it again.

Three authorities still structure the analysis. Ready Mixed Concrete [1968] 2 QB 497 sets the three-stage test. Atholl House [2022] EWCA Civ 501 treats mutuality and control as pre-conditions, then a multi-factorial third stage anchored on the contract in issue. PGMOL [2024] UKSC 29 confirms that a single engagement can supply mutuality, and that control need not reach every task.

• Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497. MacKenna J's three conditions: (i) the servant agrees to provide his own work and skill in return for a wage; (ii) he is subject to the other's control in a sufficient degree; (iii) the other provisions are consistent with a contract of service. HMRC's note is ESM7030. The Supreme Court in PGMOL treats this as the starting point.
• HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501. Mutuality of obligation and a right of control are necessary pre-conditions of employment. The third stage is multi-factorial. The terms of the engagement with the end user remain central; other work the individual does is context, not the place you start. HMRC's notes are ESM7335 and ESM0560.
• HMRC v Professional Game Match Officials Ltd [2024] UKSC 29 (16 September 2024). Mutuality of obligation for a single engagement is the wage-work bargain while that engagement lasts. It is not necessary to show an overarching obligation to offer and accept future work. Control is a sufficient framework; the engager does not need a right to intervene in every aspect of performance. Judgment: UKSC/2021/0220.

PGMOL did not decide the third-stage evaluation for those referees; it sent that back. What it settled is the content of stages one and two. Use those three cases to read your clauses. Do not treat a later first-instance IR35 appeal as a substitute for them.

On Contracts.io both sides draft, negotiate and e-signe-signatureAn e-signature is any electronic way of showing agreement to a document, such as a typed name, a drawn signature or a click.More in the glossary one shared contract, so the substitution and control lines are the version you both signed. Start from an independent contractor agreement or a freelancer agreement. The client opens one link. Nobody emails v4_final.docx back and forth. The SDS can then describe the same engagement as the signed paper.

You describe the job in a sentence. Lex, our AI host, drafts the agreement. You share one link. The client can Accept, Counter or Decline on that same version, then both of you e-sign it. The other side never pays and does not need an account.

That does not issue an SDS for the client, and it does not run CEST. It does mean the substitution right, the control line and the "no obligation to offer further work" sentence are the words you both signed, not a hope in a later email. When a Chapter 10 client is redlining those lines, put them on the same paper — see Your client redlined your contract.