IR35 refers to the UK off-payroll working rules that apply to British contractors working through personal service companies. If the engagement would be one of employment without the intermediary, income tax and NICs must be deducted at source under HMRC rules in England and Wales.

Who is responsible for determining IR35 status?

Since April 2021, medium and large British private sector clients are responsible for determining the contractor's employment status and issuing a Status Determination Statement under the UK off-payroll working rules. Small companies in England and Wales are exempt, and the UK contractor retains responsibility for their own HMRC status determination.

What is a right of substitution?

A right of substitution allows the UK contractor to send a suitably qualified person to perform the work in their place. An unfettered right of substitution (meaning the client cannot unreasonably refuse the substitute) is the strongest indicator of genuine self-employment under English law and is a primary factor in British IR35 status assessments in England and Wales.

Does the contract alone determine IR35 status?

No. HMRC looks at the actual working practices of British contractors, not just the contract terms. However, a well-drafted UK contract that accurately reflects the reality of the engagement is essential evidence in any HMRC status determination or UK employment tribunal dispute.

What is a Status Determination Statement?

An SDS is a document issued by the UK client stating their conclusion on the British contractor's employment status, with reasons. It must be provided to the contractor and any intermediary in the supply chain before the engagement begins or as soon as reasonably practicable in England and Wales.

What happens if I get the IR35 determination wrong?

If a UK client fails to take reasonable care or incorrectly determines status, they may become liable for the unpaid tax and NICs, plus interest and penalties under HMRC rules. British contractors may face backdated tax assessments in England and Wales. Professional advice is recommended for borderline cases.

Can a contractor challenge the status determination?

Yes. The UK contractor has the right to make representations if they disagree with the SDS. The British client must consider these representations and respond within 45 days under the off-payroll working rules in England and Wales, either confirming or revising the determination.

What is the small company exemption?

UK companies that meet two or more of the following criteria are small and exempt from the client-led IR35 rules: annual turnover not exceeding £10.2 million, balance sheet total not exceeding £5.1 million, and no more than 50 employees. For small British companies, the contractor is responsible for their own IR35 determination under HMRC rules.

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Free IR35-Compliant Contractor Agreement Template

Engage UK contractors with confidence using an agreement specifically designed to reflect genuine self-employment under English law, covering substitution rights, control provisions, mutuality of obligation, and HMRC status determination requirements in England and Wales.

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IR35 CONTRACTOR AGREEMENT

England And Wales · Outside IR35 · ITEPA 2003 Pt 2 Ch 8/10 · 2026-04-01

CLIENT (ENGAGER)

Acme Technologies Ltd

15 Tech Park, Reading, RG1 1TH

By: Helen Murray, Co. No. 12345678

CONTRACTOR (PSC / INTERMEDIARY)

James Walker Consulting Ltd

8 Clifton Road, Bristol, BS8 1AH

By: James Walker, VAT GB987654321

James Walker · Start: 2026-04-01

Fee: £650 per day · Net 30 days from invoice

This IR35 Contractor Agreement (this "Agreement") is entered into as of 2026-04-01 between:

(1) Acme Technologies Ltd (company number 12345678) of 15 Tech Park, Reading, RG1 1TH (the "Client"); and

(2) James Walker Consulting Ltd (company number 10293847), VAT GB987654321 of 8 Clifton Road, Bristol, BS8 1AH (the "Contractor" or "PSC"), with James Walker as the named individual providing the Services.

The parties intend the engagement to be one of a genuine independent contractor in business on own account and, accordingly, to fall outside the intermediaries legislation in Chapter 8 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and the off-payroll working rules in Chapter 10 of Part 2 of ITEPA.

SERVICES

The Contractor shall supply to the Client the following Services (the "Services"): Senior software development and architecture consultancy, including design and implementation of cloud-based microservices on AWS, code review, and technical leadership of the delivery team for the "Orion" platform migration programme.

Deliverables: Architecture decision records; production microservices deployed to AWS ECS; code-review sign-offs; monthly technical report; knowledge-transfer documentation.

The engagement commences on 2026-04-01 and continues ending on 2026-09-30. The Services shall be performed with reasonable care and skill in accordance with section 13 of the Supply of Goods and Services Act 1982.

FEES AND PAYMENT

The Client shall pay the Contractor £650 per day, exclusive of VAT. Where the Contractor is VAT-registered, VAT at the prevailing rate shall be added on a valid VAT invoice in accordance with the Value Added Tax Act 1994.

Payment terms: Net 30 days from invoice. Invoicing frequency: Monthly. Late payment shall attract statutory interest at 8% above the Bank of England base rate together with the fixed sum compensation and recovery costs under sections 5A and 6 of the Late Payment of Commercial Debts (Interest) Act 1998.

INDEPENDENT CONTRACTOR STATUS

The Contractor is engaged as an independent contractor and not as an employee, worker (Employment Rights Act 1996 s.230), agent or partner of the Client. Nothing in this Agreement shall create a contract of employment. The Contractor and its PSC are solely responsible for all income tax, employer's and employee's National Insurance contributions, VAT (if applicable), corporation tax and any other statutory deductions in respect of sums paid under this Agreement, save to the extent that the Client (or the fee-payer) is required to operate PAYE under the off-payroll working rules in Chapter 10 of Part 2 of ITEPA.

The parties acknowledge the employment-status authorities, including Ready Mixed Concrete Ltd v MPNI [1968] 2 QB 497, Autoclenz v Belcher [2011] UKSC 41, Pimlico Plumbers v Smith [2018] UKSC 29, Uber BV v Aslam [2021] UKSC 5, HMRC v Atholl House [2022] EWCA Civ 501 and HMRC v PGMOL [2024] UKSC 29, and intend this Agreement and the actual working arrangements to reflect a genuine contract for services. The written terms are intended to reflect the true agreement, and the Contractor shall notify the Client of any material change in actual working practices.

TERMINATION

Either party may terminate this Agreement at any time by giving the other 4 weeks written notice. Either party may terminate with immediate effect by written notice if the other: (a) commits a material breach which is not remedied within 14 days of written notice to do so; (b) becomes insolvent within the meaning of the Insolvency Act 1986; or (c) commits any serious breach of statutory duty. On termination, the Client shall pay all Fees accrued to the termination date.

RIGHT OF SUBSTITUTION

The Contractor has the following right of substitution: Unconditional - no client approval required. Any substitute must be suitably qualified, insured and capable of performing the Services to the required standard. The Contractor shall pay the substitute. The parties acknowledge that under Pimlico Plumbers v Smith [2018] UKSC 29 a genuine and unfettered right of substitution is a strong indicator against employment/worker status and against IR35 deemed employment; they confirm that this right is a genuine contractual right reflecting the actual working arrangements, and is not a sham (Autoclenz v Belcher [2011] UKSC 41).

CONTROL AND WORKING METHOD

The following applies to the control of the manner of performance of the Services: Contractor controls method, time and location. The Client may specify the outcomes and deliverables required but shall not direct the Contractor as to how, when (within reasonable service levels) or where the Services are performed, save to the extent necessary for site access, security or client premises-specific health and safety rules. This reflects the "control" limb of the Ready Mixed Concrete test.

MUTUALITY OF OBLIGATION

No obligation to offer or accept further work. This Agreement is for the provision of specific Services and does not create any obligation on the Client to offer, or on the Contractor to accept, any further engagement upon its conclusion. The Client is not obliged to provide a continuous flow of work and the Contractor is not obliged to be available for work. The parties acknowledge that the existence and extent of mutuality of obligation is relevant but not determinative (see HMRC v PGMOL [2024] UKSC 29).

INTEGRATION (PART AND PARCEL)

Contractor is not part and parcel of the Client organisation. Accordingly, the Contractor: (a) shall not receive employee benefits, pension contributions, holiday pay, sick pay or any statutory employment payment from the Client; (b) shall not be entitled to use the Client's internal HR, grievance, disciplinary or performance management processes; (c) shall not be required to attend staff meetings, training, appraisals or social events save where necessary for the Services; and (d) shall not be listed on the Client's organisational chart as an employee.

EQUIPMENT AND FINANCIAL RISK

Contractor provides own equipment at own cost. The Contractor bears financial risk in performing the Services: it invoices only for work properly performed, may incur a loss where deliverables are not accepted or where re-work is required at its own cost, and bears the cost of its own insurances (professional indemnity, public liability, cyber/ICO registration where applicable). The Contractor is in business on own account: Contractor is in business on own account with multiple clients. These factors reflect indicators from Atholl House [2022] EWCA Civ 501 and the HMRC Employment Status Manual (ESM0543ff).

10.

INTELLECTUAL PROPERTY

All deliverables assign to Client on payment. Any such assignment shall take effect by way of present assignment of future copyright pursuant to section 91 of the Copyright, Designs and Patents Act 1988, conditional upon receipt by the Contractor of cleared payment in full of the Fees. The Contractor warrants that the deliverables are original and do not infringe any third-party intellectual property rights. The Contractor waives, to the extent permitted by law, all moral rights under sections 77, 80 and 84 of the Copyright, Designs and Patents Act 1988 in respect of deliverables assigned to the Client.

11.

CONFIDENTIALITY

The Contractor shall keep all Confidential Information of the Client strictly confidential during the term and for a period of 2 years following termination. "Confidential Information" means any information disclosed in connection with this Agreement which is marked confidential or is by its nature confidential, including technical data, business plans, customer information and financial information. The Contractor shall use such information only for the purpose of performing the Services and shall not disclose it to any third party save (i) to professional advisers under duty of confidence, (ii) where required by law, regulatory authority or court order, or (iii) where the information is in the public domain other than by breach of this clause.

12.

DATA PROTECTION

UK GDPR and Data Protection Act 2018 apply. Where the Contractor processes personal data on behalf of the Client in performing the Services, the Contractor shall do so only on the Client's documented instructions and in accordance with Article 28 of the UK General Data Protection Regulation and the Data Protection Act 2018. The Contractor shall: (a) implement appropriate technical and organisational measures (Art.32); (b) ensure personnel confidentiality; (c) assist with data-subject requests and DPIAs; (d) notify the Client of any personal data breach without undue delay (Art.33(2)); (e) not engage any sub-processor without prior written authorisation (Art.28(2)); and (f) on termination, delete or return all personal data (Art.28(3)(g)).

13.

IR35 STATUS DETERMINATION

The IR35 status determination for this engagement is: Outside IR35 (SDS issued).

The Client shall issue a Status Determination Statement (SDS) to the Contractor (and to the fee-payer where applicable) in accordance with s.61NA ITEPA 2003 setting out the determination and the reasoning. The Contractor shall have the right to dispute the SDS under the client-led status disagreement process in s.61T ITEPA, and the Client shall respond within 45 days. Where the determination is "inside IR35", the fee-payer shall operate PAYE income tax and employee's NICs on the deemed employment payment and pay employer's NICs and the apprenticeship levy.

Both parties shall take reasonable care in concluding the status determination and the Contractor shall promptly notify the Client of any material change in working practices that may affect IR35 status.

14.

ANTI-BRIBERY AND COMPLIANCE

The Contractor shall comply with all applicable laws and codes of practice, including the Bribery Act 2010 (and, in relation to commercial organisations, s.7 and HMG's adequate-procedures guidance), the Criminal Finances Act 2017 and all applicable sanctions regimes. The Contractor shall not directly or indirectly offer, give, solicit or accept any bribe, facilitation payment or other improper advantage. Breach of this clause shall entitle the Client to terminate immediately.

15.

GOVERNING LAW AND JURISDICTION

This Agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter shall be governed by and construed in accordance with the law of England and Wales. The parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction.

16.

GENERAL PROVISIONS

This Agreement constitutes the entire agreement between the parties in relation to its subject matter and supersedes all prior discussions and agreements. No variation shall be effective unless in writing and signed by both parties. Failure or delay in exercising any right shall not constitute a waiver. If any provision is held unenforceable, it shall be severed and the remainder shall continue in full force. No person other than a party shall have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date first written above.

CLIENT (ENGAGER)

Helen Murray

Authorised Signatory

Acme Technologies Ltd

Date: ____________________

CONTRACTOR (PSC)

James Walker

Director / Named Individual

James Walker Consulting Ltd

Date: ____________________

What Is an IR35-Compliant Contractor Agreement?

An IR35-compliant contractor agreement is a contract between a client and a contractor (typically operating through a personal service company) that is carefully drafted to reflect the genuine self-employed nature of the engagement. It incorporates provisions addressing the key tests that HMRC and employment tribunals use to determine employment status: substitution, control, and mutuality of obligation.

The off-payroll working rules, commonly known as IR35, were introduced by the Finance Act 2000 and significantly reformed in April 2021 for the private sector. Under the reformed rules, medium and large private sector clients are responsible for determining whether a contractor engagement falls inside or outside IR35 and issuing a Status Determination Statement (SDS).

If a UK engagement is determined to be inside IR35, the fee-payer (typically the British agency or client) must deduct income tax and National Insurance contributions at source, significantly reducing the contractor's take-home pay. A well-drafted UK agreement that accurately reflects a genuine outside-IR35 working arrangement is therefore essential for both British clients and contractors.

What's Covered in This Template

This IR35-compliant contractor agreement template incorporates all key provisions needed to reflect a genuine self-employment relationship.

Party Details

Full details of the client and the contractor's personal service company, including company registration.

Scope of Services

Project-based or deliverable-focused description of services, avoiding employee-style job descriptions.

Substitution Rights

An unrestricted right for the contractor to provide a suitably qualified substitute to perform the work.

Control Provisions

Confirmation that the contractor controls how, when, and where the work is performed.

Mutuality of Obligation

Clear statements that neither party is obliged to offer or accept further work after the current engagement.

Financial Risk

Provisions reflecting the contractor's financial risk, including liability for defective work and own equipment.

Status Determination

The client's obligation to issue a Status Determination Statement and the process for challenging it.

Fees and Payment

Project fees or day rates, invoicing requirements, and the contractor's responsibility for their own tax.

Insurance and Liability

The contractor's obligation to maintain professional indemnity and public liability insurance.

Termination

Notice periods, deliverable-based termination, and payment for work completed.

How to Create an IR35-Compliant Contractor Agreement

Our template guides you through creating an agreement that reflects genuine self-employment indicators, helping to support an outside-IR35 determination.

1
Identify the Parties
Enter the details of the client and the contractor's personal service company. The contract should be between the client and the PSC, not the individual contractor directly.
2
Define the Scope as Project-Based Work
Describe the services in terms of specific projects, deliverables, or outcomes rather than a role or position. Avoid language that resembles a job description, such as reporting lines or working hours.
3
Include Key IR35 Safeguards
Include an unfettered right of substitution, confirm the contractor's control over working methods and schedule, and ensure there is no mutuality of obligation between engagements. These are the three core tests for employment status.
4
Address Financial Risk and Business Indicators
Include provisions reflecting the UK contractor's financial risk: responsibility for correcting defective work at own cost, provision of own equipment, no entitlement to employee benefits, and the contractor's obligation to maintain their own insurance. These business-on-own-account indicators are critical in British IR35 assessments in England and Wales.
5
Include Status Determination and Compliance
Include the UK client's obligation to issue a Status Determination Statement (for medium and large British clients), the process for the contractor to challenge the determination in England and Wales, and the tax compliance obligations of both parties under HMRC rules.

Legal Considerations

IR35 compliance involves complex interactions between tax law, employment law, and contract law. Both clients and contractors must understand their obligations.

This template is for informational purposes only and does not constitute legal advice. Consult a qualified solicitor for advice specific to your situation.

Reviewed for England & Wales law

Off-Payroll Working Rules (IR35)

The UK off-payroll working rules apply where a British contractor provides services through an intermediary (usually a PSC) and the relationship would be one of employment if the intermediary were removed. Since April 2021, medium and large private sector clients in England and Wales must determine the contractor's employment status, communicate it via a Status Determination Statement, and take reasonable care in making that determination under HMRC guidelines.

The Three Key Tests

HMRC and UK employment tribunals assess employment status using three primary tests: (1) Substitution — can the British contractor send a replacement? A genuine, unfettered right of substitution is the strongest indicator of self-employment under English law. (2) Control — does the client control how, when, and where the work is done? (3) Mutuality of obligation — is there an ongoing obligation to provide and accept work? No single test is determinative; the overall picture is assessed by UK courts and HMRC.

Status Determination Statement

Medium and large UK clients must issue a Status Determination Statement (SDS) for each British contractor engagement, giving their conclusion on employment status and the reasons for it under HMRC rules. The SDS must be provided to the contractor and any agency in the supply chain in England and Wales. If the British contractor disagrees, the client must have a process for considering representations and must respond within 45 days.

Penalties for Non-Compliance

If a UK client fails to take reasonable care in making a status determination, or fails to issue an SDS, they become the deemed employer and are liable for the tax and NICs that should have been deducted under HMRC rules. British contractors who operate outside IR35 incorrectly may face backdated HMRC tax assessments, interest, and penalties in England and Wales. Both parties should seek professional advice where status is uncertain.

Frequently Asked Questions

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