IR35 PSC Contract Template UK | Personal Service Company
Operating through a Personal Service Company exposes UK contractors to significant IR35 risk, yet many engagements begin without a contract that clearly demonstrates outside-IR35 working arrangements. Without robust contractual protections, HMRC can deem your PSC engagement a disguised employment relationship under Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003, resulting in substantial backdated tax liabilities and penalties. A well-drafted IR35 PSC contract establishes the key hallmarks of genuine self-employment: substitution rights, lack of mutuality of obligation, and financial risk — the three pillars HMRC and the courts consistently scrutinise. It also aligns with HMRC's Check Employment Status for Tax guidance to strengthen your outside-IR35 position. Protect your PSC from costly investigations and generate a compliant, professionally structured IR35 contract tailored to your engagement today.
Generate your IR35 Agreement free →Key clauses in a IR35 Agreement
Right of Substitution
This clause grants the PSC the contractual right to send a qualified substitute to perform the services in place of the named contractor, without requiring the client's approval beyond reasonable vetting. HMRC and tribunals, including the Court of Appeal in Pimlico Plumbers v Smith, consistently treat a genuine, unfettered substitution right as one of the strongest indicators of self-employment outside IR35.
Mutuality of Obligation Exclusion
This clause explicitly states that the client is under no obligation to offer work and the PSC is under no obligation to accept it, negating the continuous employment relationship HMRC seeks to establish under Chapter 10 of ITEPA 2003. Clearly excluding mutuality of obligation in writing directly counters one of the three primary tests applied by HMRC and employment tribunals when determining IR35 status.
Financial Risk and Equipment
This clause confirms that the PSC bears its own financial risk, including liability for rectifying defective work at its own cost and supplying its own equipment where applicable, demonstrating the hallmarks of a business-to-business arrangement rather than employment. HMRC's CEST tool and case law such as Ready Mixed Concrete v Minister of Pensions both recognise financial risk as a material factor in establishing genuine contractor status outside IR35.
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Generate free →Frequently asked questions
Does having an IR35-compliant contract guarantee I am outside IR35?
No — HMRC looks beyond the written contract to the actual working practices of the engagement, a principle established in cases such as Autoclenz Ltd v Belcher [2011] UKSC 41. If the day-to-day reality of your engagement contradicts what the contract says, HMRC can disregard the contractual terms and determine you are inside IR35. Your contract must accurately reflect how the engagement genuinely operates.
Who is responsible for issuing a Status Determination Statement in a PSC engagement?
Under the off-payroll working rules introduced by Chapter 10 of ITEPA 2003 and extended to the private sector in April 2021, the end client — not the PSC — is responsible for making an IR35 determination and issuing a written Status Determination Statement (SDS) to both the PSC and any agency in the supply chain. If the client fails to issue an SDS, liability for unpaid tax transfers to them rather than the PSC.
Can I use HMRC's CEST tool to check if my PSC contract is outside IR35?
HMRC's Check Employment Status for Tax (CEST) tool can be used to assess IR35 status and HMRC states it will stand by the result provided the information entered is accurate and the tool is used in good faith. However, CEST has been criticised in tribunals for not accounting for mutuality of obligation and has returned inconclusive results in complex cases, so many contractors also seek a specialist IR35 contract review alongside using CEST.
The information on this page is for general informational purposes only and does not constitute legal advice. Contracto generates AI-assisted contract templates — they are not a substitute for advice from a qualified solicitor. For high-value or complex engagements, always seek independent legal review.