IR35 Compliance Checklist: The Complete Guide for Contractors

Introduction

Navigating the complex landscape of IR35 legislation remains one of the biggest challenges for UK contractors. Whether you're a seasoned independent professional or just starting your contracting journey, understanding and documenting your IR35 status is essential for both compliance and financial wellbeing.

This comprehensive IR35 compliance checklist will guide you through the critical factors that determine your IR35 status, the documentation you should maintain, and practical steps to strengthen your outside IR35 position.

 

What Is IR35?

Before diving into our checklist, let's quickly recap what IR35 is. Introduced in 2000 and significantly reformed in 2021, IR35 (or the Off-Payroll Working Rules) is tax legislation designed to identify "disguised employees" – contractors who work through their limited companies but operate as employees in practice.

If caught inside IR35, you face higher tax liabilities similar to those of employees, without receiving employment benefits. This makes staying compliant and maintaining a genuine outside IR35 status crucial for contractors.

 

The Essential IR35 Compliance Checklist

1. Contract Review

Your contract is the first line of defense in establishing your IR35 status. Ensure your contracts include:

• - Clear deliverables or project outcomes rather than ongoing service
• - Right of substitution clause that is genuine and unfettered
• - Mutual obligation clauses are absent or minimized
• - Control provisions that demonstrate client doesn't control how you complete work
• - Financial risk indicators such as fixed price work or milestone payments
• - Correction of defective work at your own cost and time
• - Termination clauses that differ from those of employees
• - Equipment provisions stating you provide your own tools and equipment
• - Exclusivity clauses are absent, allowing you to work for multiple clients

 

2. Working Practices Assessment

How you work day-to-day must align with your contract. Document:

• - Lack of supervision from the client
• - Freedom to choose your working methods
• - Ability to set your own hours within project deadlines
• - Working location flexibility where possible
• - No integration into client's staff (different email, no staff benefits)
• - Evidence of other clients you work with concurrently
• - Business insurance policies in your company's name
• - Marketing materials for your services
• - Separate facilities from employees (where applicable)

 

3. Documentation Requirements

Maintain thorough documentation to support your outside IR35 status:

• - Signed contracts for all engagements
• - Correspondence showing business-to-business relationship
• - Invoices with company branding and payment terms
• - Business expenses related to your contract work
• - Evidence of substitution if ever implemented
• - Project plans and deliverables you've created
• - Professional indemnity insurance certificates
• - Business bank account statements showing business transactions
• - Company website and marketing materials
• - Rejected work examples or client change requests that you addressed

 

4. Business Structure Verification

Ensure your limited company operates as a genuine business:

• - Company website and professional email address
• - Business premises or home office setup
• - Multiple clients or evidence of seeking multiple clients
• - Business stationery and branding
• - Professional memberships in your company name
• - Business bank account separate from personal finances
• - Professional development investments
• - Company registration and all statutory documentation
• - VAT registration (if applicable)
• - Business asset ownership (equipment, software licenses)

 

5. Client Relationship Management

Document your client relationship to demonstrate contractor status:

• - Client communications showing professional business relationship
• - Meeting notes showing consultation rather than instruction
• - Negotiation records for rates and project terms
• - Evidence of declined work opportunities (if applicable)
• - Project sign-off documents showing completion of deliverables
• - Separate entry systems or contractor identification
• - No management responsibilities for client's employees
• - No participation in employee-only activities or benefits
• - Evidence of using own methodology rather than client's
• - Records of working for multiple clients simultaneously (where applicable)

 

Status Determination Statements

Since the 2021 reforms, medium and large private sector clients are responsible for determining IR35 status. Keep records of:

• - Status Determination Statements (SDS) from each client
• - Your assessment of each SDS
• - Any disagreement correspondence through client's dispute resolution process
• - Independent IR35 assessments you've commissioned
• - CEST tool results (with screenshots and dates)
• - Any specialist advice received about your status

 

Red Flags to Address

Be vigilant about potential IR35 red flags and document how you address them:

• - Client equipment usage (document necessity and exceptions)
• - Fixed working hours (document project requirements necessitating specific hours)
• - Long-term engagements (document changing project phases and deliverables)
• - Single client reliance (document business development activities)
• - Employee-like benefits (ensure none are accepted)
• - Previous employment with current client (document substantial changes in relationship)
• - Client business cards or email (ensure contractor status is clear)
• - Managerial responsibilities (ensure none are undertaken)
• - Notice periods similar to employees (negotiate contractor-appropriate terms)
• - Integration into organizational chart (maintain separation)

 

Regular Review Process

IR35 compliance isn't a one-time activity. Schedule regular reviews:

• - Quarterly contract reviews to ensure continued compliance
• - Annual IR35 status assessment with professional advisor
• - Regular working practices audit to identify any drift toward employment
• - Documentation update schedule for business evidence
• - Legislative updates monitoring to stay current with IR35 changes
• - Business development planning to maintain multiple client relationships
• - Professional advice consultation at least annually
• - Insurance coverage review to ensure adequate protection
• - Working practices alignment check with contract terms
• - Client education about contractor relationship expectations

 

Compliance Tools and Resources

Leverage these tools to strengthen your IR35 compliance:

• - HMRC's CEST tool for initial status assessment
• - IR35 contract review services from specialist providers
• - IR35 insurance to cover investigation costs and potential liabilities
• - Accounting software that supports contractor business management
• - Professional memberships in contractor associations
• - Contractor-specific legal advice for contract negotiations
• - Working practices questionnaires for regular self-assessment
• - IR35 status tracker for multiple engagements
• - Client communication templates that reinforce business relationship
• - Professional development records showing business investment

 

Conclusion

Maintaining IR35 compliance requires diligence, documentation, and regular review. By following this comprehensive checklist, you'll be well-positioned to demonstrate your outside IR35 status and operate with confidence in the contracting marketplace.

 

Remember that IR35 status is determined by the reality of your working relationship, not just what's written in your contract. Align your working practices with your paperwork, maintain thorough documentation, and seek professional advice when needed.

 

Staying outside IR35 isn't just about avoiding tax liabilities—it's about building a sustainable, compliant contracting business that provides you with both professional freedom and financial rewards.

 

FAQs About IR35 Compliance

How often should I review my IR35 status?

At minimum, review your IR35 status at the start of each new contract and annually for ongoing engagements. Also conduct a review whenever there are significant changes to your working practices or IR35 legislation.

Can I still be outside IR35 if I work for just one client?

Yes, but it makes maintaining outside IR35 status more challenging. You'll need strong evidence of other business-like factors such as control over your work, genuine right of substitution, and lack of mutuality of obligation.

What's the most important factor in determining IR35 status?

No single factor determines IR35 status conclusively. HMRC and tax tribunals look at the entire picture of your working relationship. However, having genuine control over how you complete your work is consistently recognized as a significant factor.

Should I keep physical or digital records for IR35 compliance?

Both have value. Digital records are easier to organize and search, but signed physical contracts and certain paper documents may have stronger evidential weight. Consider a hybrid approach with secure cloud backup for all documentation.

How do I know if my right of substitution clause is genuine?

A genuine right of substitution means you can send a qualified replacement to do your work without requiring client approval of the specific individual (though they may reasonably require certain qualifications). You should bear the cost of the substitute and maintain responsibility for their work quality.