Who’s “outside IR35”?

Genuine independent contractors count as “outside IR35”, and you can pay their PSC gross,
with no deductions for tax or National Insurance, because the relationship between you, the
worker and the PSC employing them is a service supply relationship.

But who counts as a “genuine independent contractor”? That’s a difficult question – so difficult
that a whole industry has sprung up to try to answer it for contractors. HMRC has created the
“CEST” (Check Employment Status for Tax) test, but even its creators admit that it’s often

Nevertheless, here are four key factors to look for that will hopefully make it clear.

1 Mutuality of obligation
If you’re obliged to provide work, and your contractor is obliged to accept it, you have a
mutuality of obligation. If so, they probably count as an employee (inside IR35).

2 Substitution
Can the contractor send a substitute, at their own cost, if they’re sick or can’t make it for some
other reason? (You or an agency finding someone else doesn’t count.) If not, they could be
inside IR35.

3 Supervision and control
Of course, managing a contractor isn’t the same as employing them. But if you have an
agreement with them that dictates their working hours or how they perform their work from day
to day, they’re likely to be inside IR35.

4 Part and parcel
Is your contractor part and parcel of the company structure? Are they acting as a line manager
for your employees, for example? If so, again, they’re probably inside IR35.