Example 1: The Embedded Project Manager – Classic 'Inside IR35'

Imagine Sarah, a project manager. She's brought into a big company, "MegaCorp," to manage a new software launch. Here’s the setup:

• She works full-time, 9-to-5, from MegaCorp’s office.
• MegaCorp provides her laptop, phone, and access to all their systems.
• Her tasks are assigned by a MegaCorp line manager, who also dictates how the project should run, approves her leave, and expects her to attend all internal team meetings.
• If Sarah wants a day off, she has to get it approved just like any other employee.
• There's no real option for Sarah to send someone else to do her job if she's sick or on holiday – MegaCorp hired *her*.

Why this leans Inside IR35: This scenario screams 'employee'. MegaCorp has a lot of control over how, when, and where Sarah works. There's no genuine right of substitution, and she's pretty much 'part and parcel' of the MegaCorp team. The financial risk is low for her; she's paid for her time, not a specific deliverable. This is a classic case where an umbrella company would likely be the most straightforward way to get paid.

Example 2: The Specialist Consultant – Likely 'Outside IR35'

Now, let's meet David. He's a specialist cybersecurity consultant. "TechSolutions Ltd" hires his company to conduct a specific security audit and deliver a report on their vulnerabilities.

• The contract is for a defined piece of work: the audit and report, with a fixed fee agreed upfront.
• David largely sets his own hours to complete the audit, working some days on-site and some from his own office, using his own specialist tools and laptop.
• While he liaises with TechSolutions' IT team, he decides the methodology for the audit.
• His contract explicitly states he can send an equally qualified substitute from his own company if needed (though he plans to do it himself).
• If TechSolutions isn't happy with the report, David's company is responsible for re-doing the necessary work at no extra charge. He also has his own business insurance.

Why this leans Outside IR35: David's setup looks much more like a genuine business-to-business arrangement. He has significant control over his work, a clear right of substitution, and he's taking on financial risk (having to fix errors, professional indemnity insurance). He's providing a specific service with a defined outcome, not just his time.

Example 3: The Long-Term IT Developer – The Grey Area

This is where things often get a bit fuzzier. Take Maria, an IT developer. She's been working for "Innovate Inc." for 18 months on an ongoing software development project.

• She generally works Innovate Inc.'s core hours and often from their office, though sometimes from home.
• She uses her own high-spec laptop but logs into Innovate Inc.'s development environment.
• She's part of an agile team, takes tasks from a backlog managed by an Innovate Inc. product owner, but has a lot of say in *how* she codes those tasks.
• Her contract is a rolling 3-month one, based on a day rate.
• There's no explicit right of substitution mentioned, and it's never come up.

Why this is a grey area: There are pointers both ways. The long-term nature, working alongside employees, and taking tasks from a company backlog could suggest integration (leaning Inside). However, her using her own laptop and having autonomy over *how* she codes could point Outside. The lack of a clear substitution clause and the day-rate basis are also less helpful for an Outside IR35 case. Innovate Inc. would need to look very carefully at all the IR35 status tests – what does the contract *actually* say versus the day-to-day reality? This is where a professional contract review becomes super important.

Key Takeaways from These Examples

• It's the Whole Picture: No single factor usually decides it. HMRC looks at the overall reality of the working relationship.
• Contract vs. Reality: Your contract should accurately reflect your actual working practices. If it says one thing but you do another, HMRC will go by the reality.
• Substance Over Form: Just calling yourself a consultant or having a limited company isn't enough if you're working like an employee.

Hopefully, these examples give you a better feel for how IR35 might apply in different situations. If you're ever unsure, getting your contract reviewed by an IR35 specialist is always a smart move! And don't forget to check out our guide on 10 Red Flags for IR35 Compliance.