Outside IR35 by default — and the three tests that keep it that way.
Every Fractional Quest engagement is structured outside IR35 from day one. This guide explains how — and what you (as the engager) need to do to keep it that way. This is a guide, not legal advice.
The three tests.
IR35 is the UK tax legislation that determines whether a contractor is genuinely self-employed (outside IR35, taxed as a business) or a disguised employee (inside IR35, taxed as PAYE). Three tests dominate the assessment.
Test 1 — Right of substitution
A genuinely self-employed contractor must be able to send a qualified substitute to deliver the engagement.
Not "we'd need to discuss it" — a genuine, unfettered right to substitute.
Every Fractional Quest contract carries this right explicitly, and our fractional CXO network supports it (e.g. a fractional CFO who needs to substitute a Series-B fundraise mandate can draw on the network for cover).
Test 2 — Control over how the work is done
The engager (you) specifies WHAT — the contractor specifies HOW. Outside IR35 means the contractor controls working hours, working location, and methodology.
They're not on your timesheet, they're not reporting to a line manager, they're not subject to your internal HR processes.
Inside IR35 looks like an employee in everything but the contract.
Test 3 — Mutuality of obligation (MOO)
No obligation on you to offer ongoing work, no obligation on the contractor to accept it. An engagement is scoped to specific deliverables and a defined timeframe — when the mandate ends, the relationship ends.
There's no presumption of continuing employment, no notice period, no severance.
What we put in every contract
Substitution clause, control clause, scope-of-work with named deliverables, fixed engagement period, no notice obligation, contractor invoices via their limited company. Plus a CEST test result on file at signing.
The contract pattern has been reviewed by employment-law specialists.
What you (the engager) need to do
Issue a Status Determination Statement (SDS) if you're a medium/large business (or a public-sector body of any size).
Don't put the fractional executive on your internal HR system.
Don't require them to attend daily standups they didn't agree to.
Don't pay for a substitute via your payroll.
If the day-to-day shape of the engagement starts to look like employment, the IR35 outside-status is at risk regardless of what the contract says.