Contractors who are found by HMRC to be under the ultimate right of sufficient control of their clients may also be likely to be found to be inside IR35. Control is one of the key tests of employment used by HMRC to determine whether a contractor is a disguised employee.
Until the First-tier Tax Tribunal cases involving Marlen and Primary Path in 2011, clients only needed the right of control over contractors, which may never actually be exercised, for the contractor to be caught by IR35.
This concept of where the ultimate contractual right of control resides is reinforced by the case White v Troutbeck  IRLR 286, and upheld in the Court of Appeal ( IRLR 949); Wright v Aegis.
Troutbeck also quotes from the Uber case, at Paragraph 19: "If a contractual right, as for example a right to substitute, exists, it does not matter that it is not used. It does not follow from the fact that a term is not enforced that such a term is not part of the agreement.”
This further illustrates the point that a contractual clause that has not been exercised does not make it invalid. In Autoclenz v Belcher  UKSC 41 per Lord Clarke stated: "If the genuine contractual right of control to a sufficient degree does exist, it does not matter whether that right is actually exercised."
Many of these cases were used and arguments made in the RALC Consulting  case, but the IT contractor was able to demonstrate he was outside IR35 because there was not a sufficient right of control. After considerable analysis Judge Jones concluded (para 400) that "The degree of control over him by his clients as of right or in practice was not such as to indicate a master-servant or employment relationship."
Since these cases and, in particular RALC Consulting, it is possible to demonstrate that there are degrees of control that may not be sufficient to put a contractor inside IR35. However, an understanding of the components of control – how, what, where and when – are essential to underpin a contractor’s IR35 defence.
Control: where how, what, and when
Control is broken down into four elements:
Where: does the client control the location of where the work is completed?
When: can the client dictate to the contractor specifically when the tasks must be completed?
What: this refers to the scope of the work, and works both ways. Can the client treat the contractor like a ‘tail-end Charlie’, allocating tasks at whim? This places control in the hands of the client. Alternatively, can the contractor decide to press on when a variation occurs without seeking approval from the client? This places control in the hands of the contractor.
How: is the client providing detailed instructions to the contractor about how they should complete the work?
HMRC will need to show there is sufficient control across some of these four aspects present, for there to be a strong case that the contractor is controlled and therefore inside IR35.
It is widely accepted in tribunals that the "how" factor of control can be irrelevant if the contractor is a professional, leaving the other three factors to consider. With the "where" and "what" often neutral, and of lesser weight, the "what" aspect is central to IR35 status. A master can typically tell their servant what to do, and the servant should do it. An employee can be redeployed, whereas a self-employment person cannot, unless they consent.
‘Where’ is often a neutral factor
The location, or ‘where’ factor, is often considered to be a neutral factor when determining control. This is because in many contracts the contractor is required to work on the client’s site to be able to perform the tasks.
An example often used is that of a tradesperson such as a central heating engineer working at their client’s house: The engineer can only fix your boiler if they come to your house. This doesn’t mean the householder controls or employs the engineer.
IT contractors tend to have to work on their clients’ IT systems from their clients’ offices. Engineering or oil and gas contractors may only be able to perform the tasks specified in their contracts at their clients’ facilities, sites or plants. As a result, ‘where’ is often acknowledged to be a neutral factor.
Working from home can be a good indicator of not being controlled
Although pre-Covid-19, is was relatively unusual, ‘where’ can be a factor when a contractor works mostly from their home office: If, for example, an IT contractor is working for a client in the USA, works from home and only has deadlines to meet, then it is difficult to see how they can be controlled.
There is no-one checking the work on an ongoing basis, no set hours, and nobody standing over the contractor checking they are working at a specific time. Unless the client laid down strict guidelines and rigid reporting requirements, the presumption of control is a bit tenuous.
It may be difficult for HMRC to argue that there are any of the elements of control in this scenario. But, again, it would depend on the specific facts of the case. The fact that post Covid-19 has meant many contractors work from home doesn't particularly mean the contractor is automatically outside IR35.
Control over ‘when’ can be more subtle
Controlling when a contractor must perform their tasks can be more subtle: If you have an example where an IT contractor’s banking client specifies that the contractor must be present between the hours of 08:30 and 17:30 Monday to Friday, then control is being exercised by the end client.
Alternatively, if the contractor’s client says ‘you can access our systems on site between 08:30 and 17:30 Monday to Friday but we don’t mind what hours you work within those times’, this gives control to the contractor because they have some discretion over when they can work.
The above are two examples of when a contractor is controlled versus when the contractor retains control, but there are many shades of grey when applying the ‘when’ factor.
‘What’ is the factor of key importance to IR35 status
The ‘what’ of control is clearly the main factor of key importance to HMRC, because it appears in so many of HMRC’s examples in its guidance and proposed legislation. ‘What’ applies to the scope of the work that the contractor has agreed with the client.
It is best exemplified when a contractor comes across something that is unscheduled, or something additional that requires doing, which was outside of the original contract. There are two aspects to the ‘what’ factor:
Does the contractor have sufficient control that they can press on with performing the additional task without consulting the client, so that the project can continue? This demonstrates a lack of control by the client
Does the client have the power to change the contractor’s role and workflow without consulting the contractor or renegotiating the contract; ie the contractor is being used as a ‘tail-end Charlie’. This demonstrates control by the client.
The reality is that in case 1 the vast majority of contractors would be required to seek permission from the client to complete any additional tasks arising after the contract has started, that were not in the original contract. However, this independence, if it exists, is important to acknowledge.
Where the contractor may have some license is in saying to the client, ‘I have come across a glitch that I intend to fix and that will take some extra time; are you OK with that?’. This suggests that an element of control rests with the contractor.
The right of control does not have to be exercised for IR35 to apply
In case 2, if the client has the right to allocate the contractor to any task, then control clearly rests with the client, and the contractor maybe inside IR35 as a consequence. Control exists even when the client has the right to tell the contractor what projects to work on, but may never actually do so.
This highlights a very important point, which is that the client needs only to have the contractual right to control, and not actually exercise it, for the contractor to be deemed to be controlled and inside IR35.
HMRC has used several examples in its guidance and consultation documents of where the ability of the client to allocate tasks without negotiation clearly demonstrates control.
Knowing ‘how’ can mean control rests with the contractor
What clearly sets contractors apart from many other types of flexible workers is that, if they are genuine independent professionals, they do not need to be told how to perform their tasks.
If a client provides a detailed specification, then that is not considered to be control because the contractor – or service provider – needs to understand what actually needs to be done.
But a genuine contractor should not need to be told how to complete the work, and should have discretion over how they actually perform the tasks required. Once they have been given the specification, the contractor should be able to get on with it in the manner that they choose.
Another key point, is that adhering to specific industry practice, standards or guidelines in how tasks are completed does not mean a contractor is controlled.
Contract clauses and expressed control
Many contracts can be either ‘silent’ on control or expressed. If it is not expressed in the contract, which could be either heavy control indicated or not, then we enter the realms of something called "implied terms" when constructing the hypothetical contract upon which the status is decided. This means looking at what actually happens in practice, and using that as evidence. HMRC will claim control is present and it will be down to the contractor to prove otherwise.
Suffice to say, it is essential that control is explicit in the contract, leaving no room for subjective interpretation and gaps where HMRC can claim control exists where it does not.
But, even if the contract expresses there is not sufficient control, HMRC may attempt to gather evidence and demonstrate the contract is a sham, by leveraging the case law in Autoclenz v Belcher  UKSC. This is not an easy hurdle for HMRC to jump by any means, and provided the contract has been entered into in good faith and the parties agree it's correct, they may have little chance of success.
It's important to understand that many IR35 cases that HMRC wins at tax tribunal are because the contracts were sloppily drafted boilerplate contracts, which do not accurately reflect the intentions of the parties and often contain wide ranging expressed rights of control beyond what the parties intended. But, in law, the legal obligations in the contract cannot readily be discounted.
A through exploration of the case law on this topic can be found in Atholl House Productions Limited v HMRC  TC07088.
What clients say
Clients can be clumsy when HMRC are investigating cases, and say things like: ‘of course we expect our contractors to be on site between 08:30 and 17:30 Monday to Friday’, or ‘if priorities change, I would not hesitate to move a contractor into a different project’ for HMRC to have a case for control, and IR35.
This is not something to worry too much about unless of course the contract is clearly at odds with the reality. Even though HMRC may try to use hearsay as evidence that the contractor is inside IR35 the idea that an expectation has crystallised into a legal obligation is not something the courts are quick to agree on so easily. An expectation does not trump the contractual right in the contract.
There are many aspects to control, and control itself is only one element of the tests of employment that HMRC will apply in an IR35 case. Contractors should not try and tackle an IR35 review by HMRC without expert assistance, because with professional support there’s every chance the investigation can be halted before it gets off the ground.