Outside IR35: 10 ways contractors can avoid Inside IR35 status in 2024

On LinkedIn, I’m regularly approached by other contractors who can’t get their head around how to operate – in the view of HMRC – on an Outside IR35 basis.

The number one complaint from these contractors is that their clients “treat them like employees”.

Well, I’m sorry to be the bearer of bad news, but this is entirely the contractor’s fault, writes Shadow Moses Developments Ltd founder Chris Sebok, an IT contractor with over 25 years’ experience as an independent software consultant.

While I am not a legal expert, I am a long-in-the-tooth businessman! So here, exclusively for ContractorUK, I have outlined 10 steps contractors can take to mitigate their risk when operating Outside IR35.

1. Act Like a Business

It’s obvious, but acting like a business at all times is key – yet it’s the factor that is most regularly missing.

You may well be ‘operating’ like a business in the background – with your limited company, accountant, expenses and salary-dividend mix – but if you’re not constantly engaging with your clients on a B2B basis, then you’re already digging yourself a hole.

Here’s a specific example of where you might be perceived as not ‘in business on your own account.’ If you aren’t confident enough to approach each interview or meeting as the ‘expert’ – as essentially the controlling party – then do something about it. Get some business coaching. Attend confidence-building classes. Write out a laser-like identification of your commercial services. In short? Find your ‘Why.’ At all times contractors, sell your skills, and sell your services as distinct services.

2. Be Clear on Scope

Don’t be content with a “job description” or title.

Make sure that both parties clearly understand the scope of the work that is required.

Raise this at the interview, or at least the second stage.

Agree and write up a Statement of Work (SoW); get it signed, and stick to it. Then back out if you aren’t comfortable with any non-negotiable terms. Read and understand the contract thoroughly.

3. Say No

You’ve got your SoW in place, and you’re working on a task. The client approaches you and asks you to pivot onto a different project. Say ‘No.’

You can decline without being obtuse or rude.

All clients want access to your skills and will chance their arm if they think you can help elsewhere in their business. You are not a member of staff, so are not obliged to accept any work outside of what is agreed.

Besides, accepting their offer (of work that has just cropped up) means your agreed task will suffer -- an even more important point if you’re working on a fixed price contract.

There’s a game to be played here, though. Often a client who asks you to pivot is a way you can win more business. As long as you’re clear this is a ‘one off’ piece of work, you can do the work as long as its separately documented and separately priced/paid. You really max out this Outside IR35 advantage where you stick to it being a one-off.

4. Adopt Financial Risk

Hour or day rate work is fine, but you should constantly identify ways to make your business more profitable, as a truly Outside IR35 contractor.

Fixed price work has its place, as do retainers, maintenance agreements and ad-hoc consultancy.

Don’t immediately say ‘No’ to other chargeable pieces of work from the same or other clients, other than in the scenario above in step 3! ‘ABC’ - Always Be Closing.

5. Provide Your Own Paperwork

Ready your own contract, SoWs, and NDAs.

Ensure you have a functional website and unique branding.

Write any documentation you provide on your own letterhead by default.

Use your own email, calendar, and online accounts.

6. Diversify

Networking. Marketing. Branding. SEO. Loss leaders. Engagement of multiple clients and juggling multiple contracts. In short, do everything a ‘real’ business does to win work, and does to keep winning that work.

7. Don’t Feel Tempted at Contract Extension

Understand that you are there to complete a specific piece of work.

Don’t rely on ‘contract extensions.’

Each piece of work should be scoped and accompanied by a clear SoW.

No matter how tempting it is, if a client is offering you an extension just because they have budget and / or don’t want to lose you, say ‘No’, or go permanent.

8. Never Just Sit on the Bench

If you have nothing to do, then don’t raise an invoice.

A truly outside IR35 contractor should not be tied to a single client, or invoice just to remain ‘exclusive.’

This is a major signpost to Inside IR35 and probably the most tempting to ignore for most contractors. Who doesn’t want money for doing nothing? Use any downtime time to network, prospect, and prosper! Never just literally ‘sit’ on the bench.

9. Work to Your Own Schedule

It’s difficult – especially as a Brit – to say ‘No’ to regular meetings!

But again the n-word is key, as you shouldn’t be doing anything for your client that detracts from the delivery of your SoW.

If you are working with other members of your client’s staff, then make yourself available to them, but make it clear that you are not exclusive. Don’t succumb to accusations of not being a ‘Team Player.’

You’re not an employee; you don’t need to be supervised, controlled or directed to deliver what’s been agreed -- they do.

10. The Contract

The contract, while important, is arguably not as important as your behaviour and how you conduct your day-to-day working practices; what happens in reality, on the ground.

The contract should, however, reflect those real working practices, and reflect the understandings between the parties e.g. don’t include a substitution clause if the client simply won’t allow a substitute! Legitimate substitution might well be a ‘get out of jail free card’ when it comes to an IR35 investigation. But the vast majority of IR35 cases which come to light are centred around ‘personal service,’ where the client is paying a premium for an individual’s skills/personality. There’s nothing wrong with personal service, regardless of how it has been demonised by HMRC and others.