Accounted's IR35 Assessment Tool: How It Works
IR35: The Tax Rule That Worries Every Contractor
If you work through a limited company or personal service company, IR35 is probably the single biggest tax concern you face. Get it wrong, and the financial consequences are severe -- HMRC can reclassify your income as employment, meaning you'd owe income tax and National Insurance as if you'd been an employee all along, plus interest and potentially penalties.
The problem is that IR35 is notoriously difficult to assess. It depends on a range of factors -- control, substitution, mutuality of obligation -- and HMRC's own assessment tool (CEST) has been criticised for being unreliable. According to HMRC's CEST tool guidance, the tool provides an indication but not a definitive answer. That's not exactly reassuring when thousands of pounds of tax are at stake.
Accounted's IR35 assessment tool gives contractors a clearer, more detailed analysis of their IR35 status. It doesn't replace professional legal advice for complex cases, but it provides a structured assessment that helps you understand where you stand and what evidence you need to support your position.
What IR35 Actually Tests
Before diving into how Accounted's tool works, it's worth understanding what IR35 is actually assessing. The legislation looks at whether, if the intermediary (your limited company) were removed, the relationship between you and your client would be one of employment or self-employment.
Three core tests determine this:
1. Control
Does the client control how, when, and where you do your work? If the client dictates your working hours, your methods, and your location in the same way they would for an employee, this points towards employment (inside IR35).
If you have genuine autonomy over how you deliver the work -- choosing your own methods, setting your own hours, working from your own premises -- this points towards self-employment (outside IR35).
2. Substitution
Could you send a qualified substitute to do the work in your place? A genuine, unrestricted right of substitution is one of the strongest indicators of self-employment. If you're personally required to do the work and can't send someone else, this looks more like employment.
The key word is "genuine." A substitution clause in a contract that would never be exercised in practice carries less weight than a demonstrated ability and willingness to substitute.
3. Mutuality of Obligation
Is the client obliged to offer you work, and are you obliged to accept it? In an employment relationship, the employer must provide work and the employee must do it. In a genuine self-employment relationship, either party can walk away between engagements.
If you're engaged on a project basis with no obligation on either side beyond the current project, this points outside IR35.
How Accounted's Assessment Works
Accounted's IR35 assessment tool analyses your situation across these three core tests and several supporting factors. The assessment happens through a structured conversation with Penny via WhatsApp.
Step 1: Contract Analysis
Penny asks you to share your contract details. You can either:
- Send a photo or PDF of your contract via WhatsApp
- Answer a series of questions about your contractual terms
Penny analyses the contract for key IR35 indicators:
- Substitution clauses (and whether they're restrictive or unrestricted)
- Control provisions (who determines how the work is done)
- Termination terms (notice periods that mirror employment contracts are a risk factor)
- Financial risk provisions (do you bear any financial risk?)
- Equipment provisions (who provides the tools and equipment?)
Step 2: Working Practices Assessment
A contract is only part of the picture. HMRC and tribunals place equal weight on actual working practices. Penny asks about your day-to-day reality:
- Do you work set hours, or do you choose when you work?
- Do you work at the client's premises, your own, or a mix?
- Does the client supervise your work or review it after completion?
- Do you use your own equipment or the client's?
- Have you ever sent a substitute, or could you realistically do so?
- Do you invoice per project/deliverable, or on a time-based basis?
- Do you work for multiple clients simultaneously?
- Are you integrated into the client's business (company email, org chart, staff meetings)?
Step 3: Risk Factor Analysis
Penny evaluates additional factors that tribunals have considered relevant:
- Financial risk -- do you carry any risk of loss? Do you provide your own insurance?
- Business presence -- do you have a website, business premises, other clients?
- Part and parcel -- are you treated as part of the client's staff?
- Employee benefits -- do you receive holiday pay, sick pay, pension contributions?
- Right to terminate -- can either party end the engagement without the notice period typical of employment?
Step 4: The Assessment Result
Based on all the information gathered, Penny provides a structured assessment:
Penny: Here's my IR35 assessment for your contract with Acme Digital Ltd:
Overall indication: Likely Outside IR35
Breakdown by factor:
- Control: Low risk -- you determine your own methods and hours
- Substitution: Medium risk -- contract includes a substitution clause, but it requires client approval
- Mutuality of Obligation: Low risk -- project-based engagement with no ongoing obligation
- Financial risk: Low risk -- you provide your own equipment and carry professional indemnity insurance
- Business on own account: Low risk -- you have multiple clients and your own business website
- Part and parcel: Low risk -- you don't attend staff meetings or use a company email
Key risk area: The substitution clause requires client approval, which weakens the right of substitution. Consider negotiating an unrestricted right to substitute.
Important: This is an indication based on the information provided, not legal advice. For contracts where the assessment is borderline, or where significant tax liability is at stake, I'd recommend consulting an IR35 specialist.
What the Assessment Tells You
Accounted's IR35 assessment provides three levels of output:
1. Overall Indication
A clear statement of whether your engagement appears to be inside or outside IR35, or borderline. This gives you a starting point for understanding your position.
2. Factor-by-Factor Breakdown
Each IR35 factor is assessed individually, so you can see exactly where your strengths and weaknesses lie. This is far more useful than a simple "inside" or "outside" answer, because it shows you what to address.
3. Actionable Recommendations
Where Penny identifies risk factors, she suggests specific actions to strengthen your position. These might include:
- Renegotiating contract terms (e.g., adding or improving a substitution clause)
- Changing working practices (e.g., ensuring you don't use a client email address)
- Gathering evidence (e.g., documenting instances where you've exercised control over how you work)
- Seeking specialist advice for borderline cases
How This Differs from HMRC's CEST Tool
HMRC's Check Employment Status for Tax (CEST) tool is free and widely used, but it has well-documented limitations:
| Feature | HMRC CEST | Accounted IR35 Assessment | |---------|-----------|--------------------------| | Mutuality of obligation | Not assessed (controversial omission) | Fully assessed | | Contract analysis | Not included | Analyses contract terms directly | | Working practices | Generic questions | Detailed, context-specific questions | | Actionable advice | Binary yes/no/undetermined | Factor breakdown with recommendations | | Plain English | Government language | Conversational, easy to understand | | Accessibility | Web form | WhatsApp conversation |
The key criticism of CEST is that it doesn't assess mutuality of obligation -- one of the three core IR35 tests. Several tax tribunals have noted this omission. Accounted's assessment includes all three core tests plus supporting factors.
That said, HMRC has stated that it will stand behind CEST's determination if the information entered is accurate. So CEST has a role, but it shouldn't be your only assessment tool.
When to Use the Assessment Tool
We recommend running an IR35 assessment:
- Before starting a new contract -- understand your position before you begin work
- When contract terms change -- a renewal with different terms may change your IR35 status
- When your working practices change -- if the client starts requiring you to work from their office, for example
- Annually -- as a review of ongoing engagements, especially given that IR35 reform means medium and large clients now make the determination for you
The assessment is included with your Accounted subscription at no additional cost. Run it as many times as you need for as many contracts as you have.
IR35 and Your Tax Position
Your IR35 status directly affects your tax calculations. Accounted's real-time tax estimates take your IR35 status into account:
- Outside IR35: Your income is treated as company revenue, and you can extract profits through a combination of salary and dividends in the most tax-efficient way
- Inside IR35: The deemed payment rules apply, and your tax liability is calculated accordingly
Penny adjusts your tax estimates automatically based on the IR35 assessment for each contract, so your real-time tax position always reflects your actual situation.
The Limitation: Not Legal Advice
We want to be clear: Accounted's IR35 assessment is an analytical tool, not legal advice. For contracts worth significant sums, or where the assessment indicates a borderline result, you should consult a specialist IR35 adviser or an employment status barrister.
What Accounted's tool does brilliantly is:
- Give you a structured starting point
- Help you understand the factors that matter
- Identify specific areas to address
- Provide ongoing monitoring as circumstances change
For the majority of straightforward contractor engagements, this is sufficient. For complex or high-value contracts, it's a valuable first step before seeking specialist advice.
View all features or start your free trial to try the IR35 assessment tool alongside Penny's full bookkeeping capabilities.
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