Financial Risk and Being in Business on Your Own Account

Financial risk and being in business on your own account for IR35

Financial risk is one of the longest-standing factors in employment status analysis, and it remains central to how HMRC frames the question of whether a contractor is genuinely "in business on their own account". For limited-company contractors weighing up their IR35 position, understanding what financial risk actually means in practice, and how it fits alongside other status indicators, is a useful starting point before speaking to a specialist.

This article is educational. It explains how HMRC's guidance and current case law approach financial risk. It does not, and cannot, tell you what your own IR35 status is: that depends on the specific facts of your contract and working practices, and ultimately on the client's Status Determination Statement (SDS).

What HMRC means by "financial risk"

HMRC's Employment Status Manual defines financial risk as a factor arising where the worker, or their intermediary (typically a personal service company), bears some significant costs of the contract and may make a profit or suffer a financial or accounting loss as a result (HMRC ESM11020). In plain terms: an employee is generally paid a wage regardless of how a project turns out, whereas someone in business on their own account carries some genuine exposure to loss.

Examples of financial risk that HMRC's guidance recognises include:

• Having to fix errors or defective work in your own time, at your own expense
• Quoting a fixed price for a piece of work rather than being paid purely by the hour
• Investing in your own equipment, software, insurance, or premises
• Having gaps between contracts with no guaranteed income
• Bearing the cost of your own training, marketing, or professional indemnity cover

None of these factors is decisive on its own. HMRC's manual treats financial risk as one strand within a broader employment-status framework that also considers control, substitution, and the wider picture of the engagement (HMRC ESM11020).

Why "in business on your own account" matters

The phrase "in business on your own account" describes a worker who operates commercially, takes on risk, and stands to gain or lose depending on how the work is performed, rather than someone integrated into a client's organisation on employee-like terms. HMRC's guidance notes that off-payroll working (IR35) rules, formally the Intermediaries Legislation, apply where someone works in a way that is similar to employment but does so through their own intermediary, in which case the tax and National Insurance treatment is intended to follow employee-style rules (HMRC ESM11020). Financial risk is one of the clearest practical signals that a contractor sits on the "business" side of that line rather than the "employee" side, but it has to be weighed alongside everything else in the engagement.

Control, substitution, and PGMOL

Financial risk does not sit in isolation. Current case law continues to place significant weight on control (how much say the client has over what, how, when and where work is done) and the right of substitution (whether the contractor could send a suitably qualified substitute in their place). The Supreme Court's decision in the PGMOL case confirmed that mutuality of obligation and control remain relevant considerations in deciding employment status, and the judgment record shows the Court of Appeal had earlier remitted the case for the tribunal to examine whether there was sufficient mutuality of obligation and control in the individual contracts for them to amount to contracts of employment (Supreme Court, PGMOL). That procedural history is a useful reminder that status questions are fact-specific and often turn on detailed tribunal findings rather than a single test.

For contractors, this means financial risk should be considered alongside how much genuine control the client exercises, and whether a real (not just theoretical) right of substitution exists in the contract and in practice.

Why the client's position matters, not the platform's

Since the 2017 public-sector reform and its 2021 extension to medium and large private-sector hirers, it is the end client (not the contractor, and not a job board) who is legally responsible for producing the Status Determination Statement (HMRC ESM11020). When a listing states that a role is "outside IR35", that is the client's assessment of the engagement, often informed by a CEST result, a contract review, or both. HMRC has been clear that CEST outputs are not determinative on their own, and a contract review or SDS should be treated as evidence the client has provided, not as independent verification by any third party, including this platform.

If you are assessing a specific contract, the practical next step is to have the actual working arrangements, not just the paperwork, reviewed by a qualified IR35 contract reviewer or contractor accountant. For questions about your employment rights more broadly, the Fair Work Agency is the relevant regulator to contact.

If you want to see how financial risk and status assessments show up in live contracts, you can browse outside-IR35 contracts or check current day-rate benchmarks to get a sense of how the market is pricing risk-bearing engagements versus more employee-like roles.

Further reading

• HMRC Employment Status Manual: ESM11020 glossary
• Supreme Court judgment: HMRC v Professional Game Match Officials Ltd

This platform does not determine, verify, or warrant IR35 status; the SDS is the client's legal responsibility. Contractors should take their own advice and consider IR35 insurance.