Understanding IR35 is essential for both contractors and businesses operating in the UK. Whether you are an independent professional providing services to various clients or a company relying on contractors to support projects, ensuring that IR35 status is correctly assessed can prevent financial risk, penalties, and unwanted HMRC scrutiny. An accurate IR35 check ensures that working arrangements are compliant, transparent, and correctly documented, reducing the chance of disputes or unexpected tax liabilities.

This comprehensive guide explains how to perform an accurate IR35 check, what factors to consider, how HMRC evaluates status, and the steps required to minimise risk. It also highlights how expert support from experienced payroll partners such as The Infinity Group can help businesses and contractors stay compliant throughout the process.

Understanding IR35 and Why an Accurate Check Matters

IR35 is a UK tax legislation designed to determine whether a contractor is genuinely self-employed or working as a disguised employee. The rules assess working practices, contractual terms, control, supervision, and the overall nature of the engagement. If the contractor is inside IR35, it means they are treated as an employee for tax purposes. If they are outside IR35, they are considered genuinely self-employed.

An accurate IR35 check matters because:

  • It helps avoid unexpected tax bills
  • It protects both contractors and companies from penalties
  • It ensures contracts and working practices align
  • It supports transparent, fair employment practices
  • It reduces the risk of disputes or reclassification by HMRC

Failure to assess IR35 properly can lead to costly consequences. Businesses can be held liable, and contractors may face financial burdens. Therefore, an IR35 check must be thorough, evidence-based, and updated as working circumstances evolve.

Step 1: Review the Contract Terms Carefully

The first step of an accurate IR35 check is to examine the written contract. HMRC looks at both the contract and the actual working practices, but a well-drafted contract sets a clear foundation.

Key contract elements to review include:

  • Scope of work
  • Responsibilities
  • Payment structure
  • Duration
  • Substitution clauses
  • Control clauses

A compliant IR35 contract clearly outlines that the contractor is engaged as a self-employed professional providing services, not working as an employee.

Important contract clauses to check:

Substitution
A genuine right to substitution indicates the contractor can provide someone else to complete the work. While rarely used in practice, the contractual right to substitute supports outside IR35 status.

Control
The contract should demonstrate that the contractor decides how, when, and where the work is carried out. Excessive control by the client suggests employment.

Mutuality of Obligation (MOO)
A business must not be obligated to continuously provide work, nor should the contractor be obligated to accept it. Continuous obligation is a sign of employment.

Equipment and Materials
Ideally, the contractor should supply their own equipment. Using the client’s tools may lean towards an employment relationship.

A carefully drafted contract should reflect true self-employment. However, the contract alone is not sufficient without matching working practices, which we explore next.

Step 2: Examine Actual Working Practices

Working practices carry more weight than the written contract. HMRC evaluates whether day-to-day activities match the contract terms.

Important working practices to verify:

Control in Action
Does the contractor choose how and when to perform the tasks? If the client controls daily activity, it resembles employment.

Integration
Is the contractor embedded into the organisation, attending staff meetings, using internal communication tools, and reporting like an employee? High integration suggests employment.

Financial Risk
A self-employed contractor typically bears financial risk, for example:

  • fixing mistakes at their own cost
  • investing in tools or training
  • managing deadlines independently

If the client absorbs most of the risk, it leans towards employment.

Provision of Equipment
Using personal equipment supports outside IR35 status. Using the client’s equipment may indicate employment.

Substitution in Practice
Even if not used, the contractor should have the real ability to send a substitute if necessary.

To ensure an accurate IR35 check, always match working practices to the contract.

Step 3: Assess the Key IR35 Tests in Detail

HMRC uses three core tests to evaluate IR35:

  • Mutuality of Obligation
  • Control
  • Personal Service

To perform an accurate check, assess each test individually and take a holistic view.

Mutuality of Obligation (MOO)
An employment relationship typically includes ongoing work expectations. A contractor relationship should not imply continuous work beyond the agreed project.

Control
The client should not dictate exactly how work is completed. The contractor should decide methods, timelines, and execution, within reasonable scope.

Personal Service
The contractor should not be required to personally perform the work if substitution is part of the engagement.

Secondary factors also contribute:

  • financial risk
  • equipment ownership
  • project-based payment
  • absence of employee-like benefits
  • lack of entitlement to redundancy
  • insurance responsibilities

A clear IR35 check considers all these factors collectively, not in isolation.

Step 4: Use Clear Documentation to Support the IR35 Check

Documenting the IR35 assessment is essential. HMRC may request evidence if they investigate.

Key documents to maintain:

  • contracts and variations
  • communication regarding scope changes
  • substitution records (if applicable)
  • project completion reports
  • independent invoices
  • insurance certificates

Proper documentation makes it easier to demonstrate compliance.

Companies often work with payroll experts like The Infinity Group to ensure documentation is kept accurate and consistent.

Step 5: Use Tools Like HMRC’s CEST Tool (With Caution)

HMRC’s CEST (Check Employment Status for Tax) tool is widely used for IR35 checks. However, it has limitations and cannot evaluate every scenario. While it offers guidance, it should not be considered the only assessment tool.

Advantages of using CEST:

  • instant output
  • structured questions
  • recognised by HMRC when used accurately

Limitations:

  • cannot interpret complex working practices
  • sometimes oversimplifies
  • may not reflect practical situations accurately

For complex cases, professional IR35 advisors or payroll services such as The Infinity Group can provide more accurate analysis and support beyond automated tools.

Step 6: Consult a Specialist for Complex Cases

In many situations, IR35 status can be complicated, especially for:

  • long-term contracts
  • roles with mixed responsibilities
  • hybrid working arrangements
  • high-level specialist roles
  • multiple overlapping contracts

Specialists can provide:

  • contract reviews
  • working practice audits
  • compliance support
  • tailored IR35 assessments
  • risk management strategies

The Infinity Group assists contractors and businesses by providing structured guidance and ensuring that IR35 checks are accurate and aligned with HMRC regulations. Relying on specialist support reduces risk and improves contractual clarity.

Step 7: Regularly Review Status as Circumstances Change

IR35 status is not static. It can change depending on the project, working environment, or responsibilities. Therefore, IR35 checks must be reviewed regularly.

Reasons to re-assess:

  • contract extensions
  • changes in working patterns
  • new responsibilities
  • shift from project-based to routine work
  • updated industry rules
  • organisational restructuring

Regular reviews ensure compliance and help avoid unexpected HMRC challenges.

Step 8: Understand the Consequences of an Incorrect IR35 Check

Failing an IR35 check can lead to serious consequences for contractors and businesses.

For businesses, risks include:

  • penalties for incorrect assessments
  • liability for unpaid tax and National Insurance
  • reputational damage
  • disputes with contractors

For contractors:

  • reduced take-home pay if reclassified
  • unexpected tax payments
  • backdated liabilities
  • limited appeal options

These consequences highlight the importance of ensuring accurate IR35 checks from the beginning.

Step 9: Consider Using a Managed Payroll Service

Managed payroll providers can reduce the administrative burden and help maintain compliance. In the UK, companies such as The Infinity Group support businesses with contractor payroll services, IR35 compliance, documentation checks, and ongoing guidance. Their experience helps ensure all assessments follow HMRC standards.

Benefits of using a managed payroll provider:

  • reduced risk
  • accurate tax calculations
  • up-to-date regulation monitoring
  • consistent documentation
  • expert guidance for complex cases
  • efficient onboarding and payment processing

This level of support is particularly useful for companies managing multiple contractors across different projects.

Step 10: Ensure Everyone Involved Understands Their Responsibilities

Accurate IR35 checks involve collaboration between:

  • contractors
  • hiring companies
  • agencies (if applicable)
  • payroll providers

Each party plays a role:

The contractor
should maintain accurate records, communicate clearly, and follow defined working practices.

The hiring company
should ensure the contract reflects reality and provide documentation on project scope and expectations.

Agencies
should maintain accurate information and pass relevant documentation between parties.

Payroll providers such as The Infinity Group
help ensure that the process remains compliant, correctly monitored, and structured.

Clear communication reduces confusion and prevents assumptions that may lead to incorrect IR35 decisions.

Conclusion

Performing an accurate IR35 check requires understanding of both the contract and the working practices behind it. Businesses and contractors must carefully assess key factors such as control, substitution, financial risk, and mutuality of obligation. Contracts should be clear, transparent, and reflective of real working conditions to avoid misunderstandings.

Compliance with HMRC expectations is essential, and regular reviews are important as situations change. While tools like CEST can be useful, they should not replace professional judgment. Working with experienced payroll service providers such as The Infinity Group ensures accurate assessments, reduces risk, and supports ongoing compliance.