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IR35 test: Supervision, Direction or Control

There are more ways to assess IR35 than skin a cat

Regular followers of the Intouch blog will by now be familiar with some of the more controversial proposals to come out of the Summer Budget. In particular, the suggested reforms aiming to improve compliance to the Intermediaries Legislation (IR35) have made people rather hot under the collar.

This week, I would like to focus on the three words every contractor and engager needs to be fully aware of; ‘Supervision, Direction or Control’ are already significant indicators currently used by HMRC as a test for disguised employment / false self-employment in the agency rules (ESM2029).

One of the ideas floated in the open IR35 discussion document is to align the IR35 test with that used for temporary workers. If this comes to fruition, the right of Supervision, Direction or Control (SDC) is likely to become ever more prominent in the future interpretation of IR35 status.

What is Supervision, Direction or Control?

HMRC uses facts relating to SDC to assess whether an individual is free to do their work as and when they choose, without supervision, direction or control of the hirer and is thereby working through a company legitimately and correctly taxed as an independent worker.

Essentially, the idea is to provide a framework with which to differentiate a truly self-employed individual or PSC from a disguised employee. Yet many people still don’t really understand what these terms mean, or how and when they apply, so let’s take a look.


Supervision refers to someone overseeing a person doing work to ensure quality standards are met and / or to help a person develop their skills.

Direction refers to the provision of “instructions, guidance or advice” as to how a job must be completed, along with coordination of how the work should be done.

Control refers to a person being told what work they should be doing and how they should go about doing it. It can also refer to someone having the power to move a person from one job to another.


As hinted at in the proposed reforms, should HRMC be able to demonstrate that an individual is, in fact, working under authority, is being supervised, controlled or directed by the hirer, IR35 will apply.

A seemingly innocuous word that makes all the difference in the debate on SDC is ‘or’ – as only one of these three proof points need apply for an individual to fall inside IR35.

The real fly in the ointment is HMRC’s latest (and not fully considered) idea to put the onus of deciding whether or not IR35 applies onto the engager, instead of the worker and exposing them to additional taxation if they get it wrong. We will be discussing this issue in more detail next week.

Who will SDC apply to?

Well, this is the million dollar question and the saying, “There’s more than one way to skin a cat,” is never more true than when applied to the ins and outs of the IR35 legislation.

Some cases are easier to assess than others. For example, a self-employed worker brought in to cover a permanent member of staff’s maternity leave is likely to be subject to the same terms of supervision, direction or control as an employee, thus IR35 is more likely to apply.

In my opinion, control is the battleground on which this issue will be fought, for someone only need prove that they are not controlled to stand a chance of winning the argument. It is too early to say that control is at the head of the Holy Trinity of SDC but if it is, then if control is absent perhaps a lack of sufficient direction and supervision will follow.

Interestingly, if SDC are all degrees of control and not separate tests as HMRC is suggesting, then control is where the argument will be won or lost. This could be done through something as simple as a revision to their existing contract. However, I have a sense of ‘deja vu’ about this solution in that we have been here before with the right of substitution being inserted into contracts.

Each situation is open to subjective interpretation and the examples given in the IR35 discussion document are too clear cut and out of touch with reality to be helpful. To truly earn support within this complex industry, HMRC must first get a proper handle on the nature of the businesses and workers it is attempting to better regulate.

So long as viewpoints compiled by trade bodies and individuals are taken on board, the discussion document could be a positive first step towards modernising these outdated and unrealistic stereotypes.

The repercussions of change

The danger for HMRC is that, in trying to get everyone to play fairly by changing the rules of the game, it will still drive people to the wrong side of the IR35 line. We could end up with yet more abuse of the system that is even harder for the government to clamp down on.

The Association of Professional Staffing Companies has already warned the proposals would have a “devastating effect” on the flexible recruitment market. I share the same fears for the contracting industry as a whole, but this is not the end of the story. There is still a chance to influence decisions before they make it to consultation stage and HMRC has invited suggestions for alternative options.

At Intouch, we will be contributing to the conversation and are already in talks with our key trade body contacts to discuss and propose a more effective solution for reform.

If you haven’t already, please sign up to the Intouch blog below so we can keep you informed of the latest developments in IR35 legislation, industry news and helpful advice.


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.