IR35 and fractional executives

What the rules are for

The off-payroll rules exist to catch someone who works through their own company but is, in substance, an employee of the client. Where that is the case the engagement is described as inside IR35 and is taxed broadly as employment. Where the arrangement is a genuine business-to-business one it is outside, and taxed as trading.

The label attached to the work is not what decides it. Consultant, contractor, interim and fractional all carry the same test underneath.

Who decides

It depends on how big the client is. HMRC’s guidance is that where a worker provides services to a small private-sector client, the worker’s own intermediary is responsible for deciding status. Where the client is medium or large, or is in the public sector, the client decides, and must produce a Status Determination Statement that gives the reasons behind the decision.

The thresholds that make a company small are set by HMRC and have moved more than once, so check the current figures rather than trusting a number in any article, including this one. What matters structurally is that the smaller the client, the more the responsibility sits with the executive.

What actually gets tested

Three things carry most of the weight, and none of them is about job titles.

Control. Who decides what is done, how it is done, and when. An executive who is told which hours to work and how to do the work looks like an employee. One who is engaged to deliver an outcome and decides the method does not.

Substitution. Whether the work could genuinely be done by somebody else the executive sends in their place. A right of substitution that exists on paper but could never be exercised in practice is usually treated as worth very little.

Mutuality of obligation. Whether the client is obliged to offer work and the executive obliged to take it. A standing expectation of continuous work in both directions points towards employment.

Several clients at once is genuinely helpful evidence, because it is difficult to argue somebody is a disguised employee of five companies. But status is assessed engagement by engagement, so it supports the case rather than settling it.

The directorship point

This is the one most often missed, and it is worth raising before an arrangement starts rather than after. If a fractional executive is appointed to the board as a statutory director, they become an office holder, and the duties of that office are treated differently from ordinary contracted services.

It comes up constantly in fractional work because a company that wants a fractional CFO often also wants them on the board, and the two are not the same arrangement. If a directorship is part of the plan, take advice on that specific point.

What this means practically

For a company: know which side of the small threshold you fall, write a contract that reflects what will actually happen rather than a template, and if you are medium or large, produce the determination and keep the reasoning. A contract that describes independence while the working relationship looks like employment is the worst of both.

For an executive: keep the engagements genuinely separate, keep your own equipment and method, and be careful about anything that looks like a standing obligation. If a client asks you to join the board, treat that as a separate question with its own answer.

Where getoperators sits in this

Outside it. A company books an operator directly and the contract is between those two parties. We take no commission and are not in the payment chain, which means we are not the client, the fee-payer or the deemed employer for these purposes, and we do not make status determinations for anybody.

That is a deliberate consequence of the model rather than a disclaimer. It is the same reason we can publish day rates and charge operators nothing.

Common questions