An IR35 consultancy agreement is only as strong as the working practices behind it. IR35, also called the off-payroll working rules, is HMRC's test for whether a contractor working through a limited company is genuinely in business on their own account or is, in reality, an employee for tax purposes. The rules turn on three main factors: control (who decides how, when and where the work is done), the right of substitution (whether the contractor can send someone else), and mutuality of obligation (whether the client must offer work and the contractor must accept it). The critical point most people miss is that a well-drafted contract helps, but it cannot override reality: if the day-to-day relationship looks like employment, HMRC can treat it as employment regardless of the paperwork. This guide explains what to get right in a UK consultancy agreement in 2026, and how you can draft one from vetted clauses in 99 Data Rooms. It is general information, not legal or tax advice.
Consultancy arrangements are attractive to businesses and contractors alike: flexibility for the client, autonomy and often better tax treatment for the consultant. IR35 exists to stop "disguised employment", where someone works exactly like a staff member but bills through a company to reduce tax. Getting the structure right protects both sides from an unexpected bill.
The three tests that decide IR35 status
HMRC and the courts assess employment status for tax through a set of established factors, and three carry the most weight. gov.uk sets out the off-payroll rules and points to the assessment approach (see Sources).
Control is the first. A genuine consultant decides how the work gets done, usually sets their own hours within a deadline, and is not supervised like an employee. If the client dictates the method, the schedule and the location in detail, that points towards employment. A consultancy agreement should reflect real autonomy, not just recite it.
Substitution is the second and often the most powerful. A genuinely independent contractor can, in principle, send a suitably qualified substitute to do the work rather than having to do it personally. A meaningful, unfettered right of substitution is a strong indicator of self-employment. But it has to be real: a substitution clause the client would never actually accept in practice carries little weight if HMRC looks behind it.
Mutuality of obligation is the third. In an employment relationship, the employer is obliged to provide work and pay for it, and the employee is obliged to do it. A true consultancy is project-based: once the project ends, there is no ongoing duty on either side. If a contractor is, in effect, always expected to be available and the client always expected to provide work, that ongoing mutual obligation looks like employment.
Around these three sit secondary factors: who provides the equipment, whether the contractor takes financial risk, whether they can profit from sound management, and whether they are integrated into the client's organisation. No single factor is decisive; HMRC weighs the whole picture.
Why the contract cannot override reality
This is the point that catches businesses out. You can write a perfect consultancy agreement with a clear substitution clause, no mutuality and genuine autonomy, but if the actual working relationship contradicts it, HMRC and a tribunal look at what really happens, not what the document says. Contracts described as "IR35 friendly" are worthless if the consultant sits at a desk, works fixed hours under close supervision, and has done so continuously for two years with no substitute ever contemplated.
The contract still matters a great deal, for two reasons. First, where the working practices are genuinely consistent with self-employment, a well-drafted agreement is powerful supporting evidence and the first thing an adviser or HMRC will read. Second, the discipline of drafting a proper consultancy agreement forces both sides to think about how the relationship should actually work, which is often where the real risk gets fixed. The right sequence is: decide how the engagement will genuinely operate, then paper it accurately, rather than papering a fiction.
It is also worth being clear about who bears the IR35 assessment. For work with medium and large clients in the private sector, and with public sector bodies, the responsibility for determining status usually sits with the client, not the contractor. For small clients, the contractor's own company generally makes the assessment. gov.uk explains where the responsibility falls (see Sources), and this affects who carries the risk if a determination is wrong.
Consultancy versus employment: choosing the right document
Because status turns on substance, the first decision is which relationship you actually want. If you need someone integrated into the team, working set hours under direction, that is employment, and you should use a proper contract of employment. Our guide to what every UK employment contract must include covers the day-one written statement and the statutory floors that come with that route. If instead you want a genuinely independent expert delivering a defined project on their own terms, a consultancy agreement is right, and you draft it to reflect that reality.
There is a third pattern worth naming: casual, variable work with no guaranteed hours, which is neither classic employment nor consultancy. That is the zero-hours territory covered in our guide to what is legal for zero-hours contracts. And for founders bringing in someone to help build the business itself rather than deliver a discrete project, the arrangement may belong in a founder agreement instead. Matching the document to the real relationship is the whole game.
How 99 Data Rooms handles consultancy agreements
Drafting a consultancy agreement that reflects genuine independence, with a real substitution clause, clear project scope and no accidental mutuality, is exactly what the AI Legal Drafting feature in 99 Data Rooms is built for. The key point is what it does not do: it does not write legal wording from scratch and it does not let a language model invent clauses. It assembles a document from a library of vetted England and Wales clauses, selected by your answers. Vetted clauses, assembled, not AI-written law. You can see the full Legal Drafting template library on our site.
In practice you open the consultancy agreement template, which is drafted with IR35 in mind, or describe what you need in plain words, then answer a few questions: the scope of work, fees, term, substitution, and how the relationship will operate. The drafter fills the blanks with the matching vetted clauses and saves a draft you keep even on the free tier. Because status ultimately turns on facts and tax treatment, and because IR35 gets specialist, anything with real money attached is worth an accountant's or solicitor's review before you rely on it.
The document then flows into the rest of the platform. You send it as a tracked, revocable link rather than an email attachment, gate it behind a verified email and one-time code so only the intended consultant opens it, and use analytics to confirm they read it. When both sides are ready, it goes to e-signature in the browser and returns as an executed PDF with an audit certificate recording who signed, when, their IP and intent, plus a SHA-256 fingerprint. Drafted, gated, tracked, signed, revocable, in one place. The wider platform is in beta and improving fast, but that loop already works.
Draft your consultancy agreement for free
You can draft an England and Wales consultancy agreement from vetted clauses, keep the draft, and share or sign it inside 99 Data Rooms. The free tier is a real tier, not a trial: three rooms, twenty-five active links, forever, no card required. Start for free, assemble the agreement you need, and move up only when you want unlimited links, NDA gating or watermarking. The platform is in beta and improving fast, but the path from "I need a contractor agreement" to "it is signed" already runs in one place.
Sources
- Off-payroll working rules (IR35), including how status is assessed and who is responsible: gov.uk, Understanding off-payroll working (IR35), https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
What is IR35 in simple terms?
IR35, or the off-payroll working rules, is HMRC's test for whether a contractor working through their own company is genuinely self-employed or really an employee for tax purposes. If the relationship looks like employment, tax is charged broadly as if it were (see Sources). This is general information, not tax advice.
Can a good consultancy agreement guarantee I am outside IR35?
No. A well-drafted agreement is strong supporting evidence, but HMRC looks at the actual working practices, not just the contract. If reality contradicts the document, reality wins. Get the working relationship genuinely right first, then paper it accurately.
What are the three main IR35 tests?
Control (who decides how, when and where the work is done), substitution (whether the contractor can send someone else), and mutuality of obligation (whether the client must offer and the contractor must accept work). No single factor decides it; HMRC weighs the whole picture (see Sources).
Who decides my IR35 status?
For medium and large private-sector clients and public-sector bodies, the client usually determines status. For small clients, the contractor's own company generally assesses it. gov.uk sets out where the responsibility falls (see Sources).
Should I use employment or consultancy?
It depends on the real relationship. Integrated, directed, ongoing work is employment; a defined project delivered independently is consultancy. Our employment contract guide and this consultancy guide help you match the document to reality.