Structuring B2B Contracts to Robustly Defend an Outside IR35 Position

A defensible outside-IR35 position is not something a contractor argues at the point of an HMRC enquiry. It is something built into the engagement before any work starts, written into the contract and lived out in the working practices. The strongest contracts address the three primary status tests from Ready Mixed Concrete directly: personal service and the right of substitution, Mutuality of Obligation, and control. They then back those clauses with genuine financial risk and a working reality that matches the paper.

This piece sets out the clauses that carry real weight, the language that quietly undermines an outside position, and why the contract and the working practices have to tell the same story. Sister pieces in the IR35 hub cover why the HMRC CEST tool is flawed and who carries the fee-payer liability in the supply chain.

The contract is evidence, not the whole case

A well-drafted contract is necessary but not sufficient. HMRC and the tribunals look behind the paper to the actual working relationship, the realistic picture. A contract full of outside-friendly clauses that bear no relation to how the work is really done is worse than useless: it can suggest the parties knew the true position was inside and dressed it up. The goal is a contract that accurately describes a genuinely independent engagement and working practices that confirm it.

Personal service and the right of substitution

What makes a substitution clause genuine

The most powerful single clause is a genuine, unfettered right of substitution. Following Express & Echo Publications v Tanton, an unrestricted right for the contractor's company to send a suitably qualified substitute is fundamentally inconsistent with employment, because an employee must give personal service. The clause must allow the PSC to choose and supply the substitute, with the PSC remaining contractually liable and responsible for paying the substitute.

What kills the clause is a client veto. A substitution right "subject to the client's approval" or one where the client interviews and selects the substitute is treated as no real right at all. The only acceptable limits are objective qualification, security clearance, and right-to-work requirements that the original contractor also had to meet. Anything that lets the client refuse a qualified substitute on preference reduces the clause to decoration.

No Mutuality of Obligation

The contract should state plainly that the client is under no obligation to offer work and the contractor is under no obligation to accept it. After the Supreme Court in PGMOL confirmed that MOO can exist within a single engagement, the clause needs to address both periods: no obligation to provide minimum hours or continuous work during the engagement, and no obligation to offer or accept any further engagement after it. A Statement of Work framed around deliverables rather than attendance reinforces the point.

• No minimum hours, minimum days, or guaranteed-work clauses anywhere in the contract or SOW.
• An express clause that the client has no obligation to offer further work and the contractor no obligation to perform if none is required.
• Payment tied to deliverables or milestones where the work allows, rather than pure attendance.
• A genuine right to decline tasks outside the agreed scope without breach.
• No notice-period clause that mimics the structure of an employment contract.

Control: method, timing, and sequence

Control is about who decides how, when, where, and in what order the work is done. An outside position needs the contractor holding that decision-making. The contract should make clear the contractor determines the method of delivery, manages their own working pattern, and is engaged for a defined outcome rather than to be directed task by task. Routine coordination, attending a project stand-up or following site security rules, is compatible with outside status, but day-to-day direction of how the work is performed is not.

Watch for clauses that subject the contractor to the client's line management, performance review, or standard staff policies. Being slotted into the client's management hierarchy is a classic integration and control indicator that points inside.

Financial risk and being in business on your own account

Genuine financial risk distinguishes a business from an employee. The contract and the wider arrangement should reflect that the contractor stands to profit from sound management and to lose from poor delivery. This is part of the broader "in business on your own account" picture that tribunals weigh alongside the primary tests.

Clauses that quietly sink an outside position

• Substitution "subject to client approval" or client selection of the substitute.
• Minimum-hours or guaranteed-work language anywhere in the contract.
• A fixed notice period mirroring an employment contract.
• Inclusion in the client's appraisal, disciplinary, or grievance procedures.
• A job title, line manager, or position on the client's org chart.
• Entitlement to client benefits: holiday pay, sick pay, pension, staff perks.
• An exclusivity clause preventing work for other clients.

Aligning working practices with the paper

Because the realistic working relationship is what ultimately decides status, the contractor needs evidence that the contract describes reality. Keep a contemporaneous record across the engagement: emails showing you set your own hours, instances of declining tasks within scope, your own equipment in use, parallel work for other clients, and any occasion the substitution right was offered or exercised. If the substitution right has been used even once, that single fact carries enormous weight.

A confirmation of arrangements, a short document signed by the contractor and a senior person at the end-client confirming how the engagement actually operates, is a useful supplement. It captures the working-practice reality at the point it is fresh, rather than reconstructing it years later under enquiry.

Upper-level contract versus lower-level contract

Where an agency sits in the chain, there are two contracts: the upper-level contract between the client and the agency, and the lower-level contract between the agency and the PSC. The lower-level contract is the one the contractor signs, but its clauses are only meaningful if they are reflected, or at least not contradicted, by the upper-level contract and by reality. A substitution right in the lower contract is worthless if the upper contract requires the named individual. Where possible, the contractor should seek confirmation that the upper-level terms are consistent with the outside-friendly lower-level clauses.

Get the contract reviewed before signing

It is far easier to negotiate strong clauses before signing than to fix a weak contract after the work is live. An independent contract review assesses substitution, MOO, control, and financial risk against the current case law, including the post-PGMOL position, and returns a marked-up contract with strengthened language. The agency then negotiates the revisions with the end-client. Refusing weak substitution and MOO language on first read is the cheapest insurance a contractor can buy.

How does this interact with the client's determination?

A robust contract gives the end-client the material it needs to reach, and defend, an outside determination with reasonable care, rather than defaulting to inside out of caution or leaning on a single CEST run. If the client still issues an inside SDS despite strong outside-friendly terms and matching working practices, the contractor can challenge it through the SDS disagreement process, pointing to the specific clauses and evidence. The contract is the foundation that makes both a sound determination and a successful challenge possible.

Reviewing the contract over the life of the engagement

A contract reviewed once at signing can drift out of alignment with reality as the work develops. An engagement that began as a defined project can quietly become open-ended support, the contractor can start attending standing meetings as if part of the team, and the scope can broaden until the original outside-friendly framing no longer fits. Because status is judged on the realistic working relationship as it actually is, the protection a contract offers degrades if the working practices move away from it and no one notices.

The discipline that holds the position together is periodic review. On a long engagement, or whenever the scope materially changes, the contractor should check that the contract still describes the real arrangement and that the substitution, MOO, control, and financial-risk features remain genuine. Where the work has shifted, the better course is to renegotiate the terms or formalise the new scope in a fresh statement of work, rather than carrying on under a contract that no longer reflects how the work is done.

What to do if HMRC opens an enquiry

• Gather the contract, any statement of work, and both upper and lower-level terms where an agency is involved.
• Assemble the contemporaneous evidence: emails on hours and method, examples of declining tasks within scope, parallel client work, and any use of the substitution right.
• Pull together the financial-risk evidence: insurance policies, equipment purchases, fixed-price or rectification clauses.
• Avoid reconstructing the position from memory; rely on dated, original records that show the realistic working relationship.
• Take specialist advice early, before responding, as the framing of the first response often shapes the whole enquiry.

The durable outside position

A position that holds up is one where the same story is told three times: by the contract, by the working practices, and by the contemporaneous evidence. A genuine substitution right with no client veto, no Mutuality of Obligation during or after the engagement, contractor-held control over method and timing, and real financial risk, all reflected in how the work is actually done, is far harder for HMRC to unpick than any after-the-fact argument. Build it before the work starts, and keep the evidence as you go.