IR35 legislation is an important consideration for contractors, limited company directors and businesses engaging contractors across the UK. The rules are designed to determine whether an individual working through an intermediary, such as a personal service company, should be treated as an employee for tax purposes.
Carrying out an IR35 check correctly is essential because getting the employment status determination wrong can result in additional tax and National Insurance liabilities, penalties and potential disputes. Both contractors and businesses need to understand how IR35 works and ensure that status decisions are based on the actual working relationship.
For many organisations, IR35 can be complicated because there is no single factor that determines whether an engagement falls inside or outside the rules. HMRC considers the overall circumstances of the engagement, including how the work is performed and the level of control involved.
Professional IR35 checks can help businesses and contractors assess their arrangements more accurately. The Infinity Group provides professional IR35 checks, accountancy, payroll, tax advice and HMRC compliance support for businesses and contractors across the UK.
This guide explains some of the most common IR35 check mistakes and how businesses can avoid them.
What Is an IR35 Check?
An IR35 check is an assessment of a contractor's working arrangements to determine whether the engagement falls inside or outside the IR35 rules.
The assessment considers the relationship between:
- The contractor
- The contractor's intermediary
- The client
- The end client where relevant
The purpose is to determine the contractor's employment status for tax purposes.
For public sector and many medium and large private sector engagements, the responsibility for determining status generally sits with the organisation responsible under the off payroll working rules.
Mistake 1: Focusing Only on the Contract
One of the most common mistakes is relying entirely on the written contract.
A contract is important, but HMRC can consider how the relationship operates in practice.
For example, a contract may describe a contractor as independent, but the actual working arrangements could suggest significant control by the client.
Businesses should therefore examine both:
- The written agreement
- The actual working practices
An IR35 decision should reflect the reality of the engagement.
Mistake 2: Ignoring Control
Control is an important consideration when assessing employment status.
Businesses should consider who controls:
- What work is completed
- How the work is completed
- When the work is completed
- Where the work is completed
A contractor who has genuine autonomy over how they provide their services may have characteristics of an independent business.
However, a relationship where the client exercises significant control over the contractor's activities may require closer consideration.
Professional IR35 checks can help businesses assess control objectively.
Mistake 3: Failing to Consider Substitution
The right of substitution can be an important factor in an IR35 assessment.
Businesses should consider whether the contractor has a genuine right to provide a substitute to complete the work.
A genuine substitution arrangement may support the argument that the contractor is operating as an independent business.
However, simply including a substitution clause in a contract does not automatically determine the IR35 outcome. The right should be genuine and capable of being exercised in practice.
Mistake 4: Treating All Contractors the Same
Another common mistake is applying the same IR35 decision to every contractor.
Different engagements can have completely different working arrangements.
For example, two contractors may perform similar roles but have different:
- Levels of control
- Contractual terms
- Substitution rights
- Financial risks
- Working practices
- Responsibilities
Each engagement should therefore be assessed based on its own circumstances.
Mistake 5: Ignoring Mutuality of Obligation
Mutuality of obligation is another factor that can be relevant when assessing employment status.
Businesses should consider whether there is an ongoing obligation for the client to provide work and for the contractor to accept it.
An engagement that operates more like an ongoing employment relationship may require additional consideration.
IR35 assessments should consider the overall relationship rather than relying on one factor alone.
Mistake 6: Not Considering Financial Risk
Independent contractors generally operate their own businesses and may take on financial risks that employees do not.
Businesses should consider whether the contractor is responsible for:
- Correcting defective work
- Purchasing equipment
- Covering business expenses
- Managing project costs
- Taking financial responsibility for their services
The level of genuine financial risk can provide useful information when assessing the overall relationship.
Mistake 7: Relying Solely on an Online Tool
Online IR35 tools can provide useful guidance, but they should not always be treated as a complete assessment.
An IR35 decision may require consideration of several factors and the specific facts of an engagement.
Businesses should avoid relying on a simple questionnaire without reviewing the underlying working relationship.
Professional advice can provide a more detailed assessment where the situation is complex.
Mistake 8: Failing to Keep Evidence
A business should maintain evidence supporting its IR35 decision.
Relevant evidence may include:
- Contracts
- Statements of work
- Working arrangements
- Project documentation
- Contractor communications
- Substitution arrangements
- Evidence of financial risk
Keeping appropriate records helps demonstrate how the decision was reached.
It can also be valuable if HMRC later asks questions about the engagement.
Mistake 9: Not Reviewing IR35 Status
An IR35 assessment should not necessarily be treated as a permanent decision.
Working arrangements can change over time.
For example, changes to:
- Responsibilities
- Control
- Working location
- Contract terms
- Project structure
- Payment arrangements
could potentially affect the assessment.
Businesses should review engagements when significant circumstances change.
Mistake 10: Poor Communication with Contractors
IR35 decisions can become more difficult when businesses do not communicate clearly with contractors.
Where the rules require the client to make the determination, the relevant parties should receive the appropriate status determination information.
Clear communication helps reduce misunderstandings and allows contractors to understand how their engagement has been assessed.
How to Avoid IR35 Check Mistakes
Businesses can reduce IR35 risks by following a structured process.
A good approach includes:
- Reviewing the contract
- Examining actual working practices
- Assessing control
- Considering substitution
- Reviewing financial risk
- Considering mutuality of obligation
- Maintaining supporting evidence
- Communicating decisions appropriately
- Reviewing arrangements when circumstances change
- Seeking professional advice where necessary
This structured approach creates a stronger basis for IR35 decisions.
Why Professional IR35 Checks Are Important
Professional IR35 checks provide businesses with specialist support when assessing contractor arrangements.
An experienced adviser can help review:
- Contractual terms
- Working practices
- Contractor responsibilities
- Control
- Substitution
- Financial risk
- Overall engagement characteristics
Professional support can reduce uncertainty and help businesses make more informed decisions.
The Infinity Group provides professional IR35 checks and compliance support for UK businesses and contractors. Their team helps clients understand their responsibilities and review contractor arrangements carefully.
How The Infinity Group Can Help
The Infinity Group provides a range of professional financial and business support services across the UK.
Their services include:
- IR35 checks
- IR35 status assessments
- Payroll services
- Payroll outsourcing
- CIS payroll services
- Bookkeeping services
- VAT return services
- Tax advice
- Accountancy services
- HMRC compliance support
- Audit and assurance services
The Infinity Group works closely with businesses and contractors to provide practical financial guidance tailored to their individual circumstances.
Their experienced team understands the importance of accurate documentation, careful assessments and ongoing compliance.
Benefits of Getting IR35 Checks Right
Accurate IR35 assessments can provide several benefits.
These include:
- Reduced compliance risks
- Better contractor management
- Improved documentation
- Greater clarity
- Reduced tax uncertainty
- Stronger business processes
- Better communication with contractors
- Greater confidence when engaging contractors
For businesses regularly working with contractors, effective IR35 procedures can become an important part of overall risk management.
Conclusion
IR35 checks are an important part of managing contractor relationships in the UK. Mistakes can occur when businesses focus only on contracts, overlook actual working practices or fail to consider important factors such as control, substitution, financial risk and mutuality of obligation.
The best approach is to assess each engagement individually and consider the complete working relationship. Businesses should also maintain appropriate evidence and review IR35 status when circumstances change.
Professional support can make the assessment process easier and provide businesses with greater confidence when making employment status decisions.
The Infinity Group provides professional IR35 checks alongside payroll, accountancy, bookkeeping, tax advice and HMRC compliance services for businesses and contractors across the UK. Their experienced team helps clients understand complex financial and compliance requirements while providing practical support tailored to their needs.
Whether you are engaging contractors for the first time or managing an established contractor workforce, The Infinity Group can provide the professional expertise and ongoing support needed to help you manage IR35 responsibilities effectively and maintain stronger compliance processes.
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