What Are the Three Main Factors of IR35? A Status Determination Guide
Hiring organisations must accurately determine the tax status of contingent workers under the off-payroll working rules. Navigating these regulations requires a firm grasp of long-standing case law principles. At IR35 Shield, having processed over 214,000 assessments, we understand that robust IR35 compliance relies on three core concepts: personal service, control and mutuality of obligation (MoO).
What are the three main factors of IR35?
The three main factors of IR35 are personal service/substitution, control, and mutuality of obligation (MoO). These legal tests determine whether a contractor is genuinely self-employed or a deemed employee for tax purposes.
These criteria originate from the landmark case Ready Mixed Concrete v Minister of Pensions [1968]. Together, they form the foundation of every status determination. Evaluating these factors thoroughly ensures your business meets the statutory requirement to exercise reasonable care, necessary for a Status Determination Statement (SDS).
What is the right of substitution under IR35?
The right of substitution means a contractor can send a qualified replacement to perform the services rather than doing the work personally.
A genuine, unfettered right of substitution is a strong pointer that an engagement falls outside IR35 but is not determinative. If the client insists on personal service or can veto a substitute, then personal service exists.
How does control affect IR35 status?
Control determines who dictates how, what, when, and where the contracted work is performed.
Independent contractors manage their own delivery methods and project schedules. If a contract exerts significant employment-type control over a worker, the contract is more likely to fall inside IR35.
What is mutuality of obligation in IR35?
Mutuality of obligation is the reciprocal agreement where a business is required to provide continuous work and a worker is obligated to accept it.
For an engagement to sit safely outside IR35, there must be no ongoing expectation of further work or payment once the specific project deliverables are completed.
Partner with the IR35 experts at IR35 Shield
Do you need absolute certainty with your status determinations? Partner with the industry experts at IR35 Shield to safeguard your organisation against tax risk.
We’re here to support you and your business every step of the way. If you need help with your IR35 processes, feel free to reach out. You can email us at info@ir35shield.co.uk or get in touch with an expert to find out how we can help.
