How freelancers can balance retainers and IR35 compliance
For many independent consultants and freelancers, the “retainer” is the ultimate business goal: predictable monthly revenues that end the feast-or-famine cycle of being freelance. However, in complex UK tax law, a retainer can quickly transform from a financial safety net into a legal snare if it begins to look too much like “disguised employment.”
A discussion among industry experts, The Freelance Informer, started on LinkedIn, has highlighted the delicate balance required to stay outside IR35 while enjoying the benefits of a recurring fee structure.
It’s not just a label
The consensus among legal and tax experts is clear: simply calling a contract a “retainer” provides no inherent protection.
Rebecca Seeley Harris, a UK expert in employment status and author of CEST Explained, warns that the nature of the agreement is what matters most. She argues that for a retainer to remain compliant, it should function as a “genuine business ‘option fee'” rather than a salary.
“The retainer needs to be for defined access, not an obligation to do whatever is assigned,” Seeley Harris noted. “If it is for your availability… pay me to be on standby… it needs to be based on a genuine business ‘option fee’—i.e., paying to reserve access to a capability, rather than a salary for sitting there.”
She further clarified that the burden of assessment often shifts depending on the size of the client. If a freelancer is working with a small company, the freelancer is responsible for the IR35 assessment; however, for medium or large clients, that responsibility sits with the hirer.
Selling outcomes, not hours
One of the primary indicators of “inside IR35” status is the provision of personal service—essentially, the client buying your time rather than a specific result. To combat this, successful freelancers structure their retainers around outcomes.
Fiona Murray, a management consultant specialising in operations and finance, advocates for a “services-first” approach.
“The client is buying specific services/outcomes (within a defined scope), not blanket hours,” Murray shared. “Retainer is for access/expertise on tap, so not a set routine of hours per week.”
Murray also touched on the “business reality” of fees. She maintains that if a client doesn’t use the service in a given month, the fee should remain the same because the freelancer has reserved capacity and incurred an opportunity cost.
Defensive strategies for freelancers
For practitioners on the ground, staying “outside” requires more than just a well-worded contract; it requires a specific way of operating.
Verity Cash, an award-winning communications practitioner, outlined her “steady state” for maintaining independence:
- Multiple workstreams: Never relying on a single client
- Letters of Agreement: Explicitly stating rights of substitution and the use of personal equipment
- Autonomy: Determining her own hours and work location
Always have more than one client on the go at the same time—absolutely critical,” Cash emphasised.
Once we’re in the conversation stage, clients understand and respect my ways of working. Ultimately, I am very firm about never going ‘inside’!
The paper trail
While the contract sets the stage, the day-to-day reality of the work is what HMRC will scrutinise during an audit.
Dave Chaplin, CEO of IR35 Shield, offered a simplified but firm stance:
“f it’s a contract for services, a retainer arrangement doesn’t mean it is deemed employment.
However, Paul Rossiter, Co-Founder of oneXRM, cautioned that simplicity in the contract must be backed by evidence of the “delivery reality.”
“Documentation is key,” Rossiter advised. “Not only in the contractual sense but also evidencing the reality of how the engagement operates and retaining this in the event of an enquiry 5 years down the line.”
Key takeaways for freelancers
| Feature | Outside IR35 Retainer | Inside IR35 (Disguised Employment) |
| Payment basis | Value, outcomes, or “option to access” | Hours worked / Daily rate |
| Control | Freelancer decides how/where/when | Client supervises and directs tasks |
| Equipment | Freelancer provides their own | Client provides laptop/email/office |
| Exclusivity | Multiple clients simultaneously | Full-time commitment to one client |
Disclaimer:
This content is intended as a guide to B2B service positioning and does not constitute formal legal or tax advice. IR35 compliance is subject to individual circumstances and HMRC regulations. The author and publication assumes no liability for any actions taken based on this information; always seek professional counsel regarding your specific contract status. Consider intermittent counselling after first signing the contract should the services offered or client relationship change.
