The Three IR35 Status Tests Explained

Why the three tests matter

HMRC's approach to IR35 is based on employment law principles developed over decades of case law. The three core tests — substitution, control, and mutuality of obligation — emerged from landmark employment cases. No single test is conclusive; the tribunal looks at the overall picture.

1. Right of substitution

If you have an unfettered right to send a qualified substitute in your place — without needing client approval based on personal preference — this points strongly toward being outside IR35. The right must be genuine: written in the contract and exercisable in practice.

A substitution clause that requires client approval for the specific individual (rather than just their qualifications) is often seen as a personal service arrangement — and therefore pointing toward employment.

2. Control

Employment involves being told how, when, and where to work. If the client can direct the manner of your work (not just the outcome), this points toward inside IR35. Contractors should have control over how they deliver their outputs.

Working at a client's offices following their hours is not automatically inside IR35 — context matters. But attending daily standups, being managed by a line manager, and following internal HR processes all point toward the employed side.

3. Mutuality of obligation

In an employment relationship, the employer is obliged to provide work and the employee is obliged to accept it. For a contractor, there should be no such obligation: you are engaged for a specific project or deliverable, not on an ongoing commitment to provide personal services.

Long-term contracts with the same client renewed repeatedly can start to look like mutuality of obligation — especially combined with a lack of financial risk and integration into the team.

Other factors courts consider

• Financial risk — do you bear the cost if work needs to be redone?
• Provision of equipment — do you supply your own tools?
• Integration — are you part of the client's organisation chart?
• Exclusivity — are you prevented from working for others?