To show that there is no employment relationship, the contractor has to prove certain relationship criteria to determine whether they are ‘inside’ or ‘outside’ IR35. As a rule of thumb, IR35 won’t apply if the contract is for the services you provide instead of employment. It’s a good idea to keep the following three things in mind when deciding if your business falls inside or outside of IR35:

Mutuality of obligation
Working as a self-employed contractor means you can work in a project-by-project basis without any obligation to continue working for that client once the contract comes to an end. Equally, clients are under no obligation to continue offering you contracts once the project you’re working on is complete. If a client is obliged to offer you paid work and you’re obliged to take it, this is an example of a contract of employment, meaning you fall within IR35. Also, if a contract states that you can’t take on other clients while working for them, this also places you within IR35.
Substitution
If a contract states that the client wants you, and only you, to see a job through from start to finish, then this working relationship will fall within IR35 rules. For a contract to fall outside of IR35 it should highlight that the substitute workers you put forward can complete the contract work on your behalf instead.
Supervision, direction, control
Contractors must have control over how they complete their work for a contract to fall outside of IR35. If a contract sets working patterns and the client provides excessive input over how work is completed, then it’s likely that this will fall under employment rather than contract work. Keep in mind that if you’re also completing tasks for a client in addition to the contract services you’re already providing, the contract is likely to fall within IR35 too.

If the contractor passes the test, they are ‘outside’ of IR35 rules, and can continue to invoice then pay themselves through their own limited company. If they are deemed ‘inside’ IR35 and HMRC declares that it’s an employment relationship, then tax and National Insurance will be deducted from their earnings and the liability for any missing tax lies with them.

IR35 checklist: test your employment status
Trying figure out how to avoid IR35 or if it applies to contracts you’re working on? Below are some of the factors that HMRC will take into consideration when running an IR35 test, so it’s a good idea to ensure your relationship with your hirer is crystal clear before you begin work.

How you’re paid
To stay outside of IR35, self-employed contract workers tend to be paid on a project-by-project basis, which is usually when work reaches a specific milestone or comes to an end.

Running a business of your own accord
Having a website, dedicated office space and employees all goes in your favour of showing that you’re running your business of your own accord. This reinforces that you’re operating as a self-employed contractor and not offering the services you provide as an employee.
Contractors must have control over how they complete their work for a contract to fall outside of IR35. If a contract sets working patterns and the client provides excessive input over how work is completed, then it’s likely that this will fall under employment rather than contract work. Keep in mind that if you’re also completing tasks for a client in addition to the contract services you’re already providing, the contract is likely to fall within IR35 too.

The equipment you use
If a client provides you with equipment to complete a contract, and you don’t use your own, this could result in HMRC viewing you as a disguised employee. Whenever you’re at the pre-agreement stages of a contract, always make it clear that you’ll be using your own equipment while working to remain outside of IR35, otherwise it could make working out your employment status more difficult.

Contractor remains separate from client business
If contractor becomes an integral part of a business’s structure, such as having managing employees who report into them, this indicates an employee status as opposed to self-employment.

Exclusivity
One of the major perks of being a self-employed contractor is that you can work for more than one client at once. However, if you’re deemed to be working exclusively for one client only over a prolonged period of time, HMRC could view this as an employee-employer relationship, meaning you fall within IR35.

Financial risk
Self-employed contractors are likelier to experience a higher level of financial risk than an employee would as they have to invest their money into the everyday running of their business. If a client deems work faulty or substandard, putting things to right is a simple way for contractors to demonstrate their exposure to financial risk and a strong indication that they’re in business of their own account.

The legislation applies only to ‘medium or large’ businesses.
There is an exemption for end-clients who are ‘small businesses’ as defined by the Companies Act 2006. To qualify as a small company, a company that is not otherwise ineligible must meet at least two of these three qualifying conditions: turnover of £10.2m or less; £5.1m or less on its balance sheet; or. 50 employees or less.

Source
AXA
www.axa.co.uk/business-insurance/business-guardian-angel/how-ir35-changes-will-affect-freelancers-and-self-employed-contractors