Interpreting Payment-by-Results Clauses in IR35 Contracts

How to interpret an IR35 contract clause on payment by results

Many contracts reviewed by limited-company contractors include wording along the lines of "payment shall be made on delivery of agreed milestones" or "fees are payable on satisfactory completion of the deliverables." Contractors often ask whether this kind of payment by results IR35 clause is enough, on its own, to place an engagement outside IR35. It isn't, and understanding why matters more than the clause itself.

What a payment by results clause actually says

A payment by results clause ties invoicing to outcomes rather than to time spent. Instead of being paid weekly or monthly for hours worked, the contractor is paid when a defined piece of work is finished, accepted, or reaches a specified standard. A public-sector compliance note from London Fire Brigade describes exactly this kind of mechanism: a performance-based lump sum, possibly paid in instalments, tied to a specification with milestones or completion to the required standard.

On the surface, this looks like classic "contract for services" territory: a business being paid for a result, not a person being paid for their time. That is why milestone payments contractor IR35 wording is often held up by clients and agencies as evidence of self-employed-style working. But HMRC's own guidance does not support treating this clause as decisive by itself.

Why HMRC looks at substance, not labels

HMRC's guidance on understanding off-payroll working (IR35) is explicit that the off-payroll rules apply by looking at the reality of the engagement, not the label used in the contract. The rules exist, as HMRC explains in its contractor factsheet, to ensure that people working like employees through a personal service company pay broadly the same Income Tax and National Insurance as employees would.

That means a clause describing outcome-based contract IR35 status as the intended structure is only ever a starting point. What actually happens in practice, whether the contractor genuinely controls how the work is done, whether there is a real right of substitution, and whether the client can direct the individual's day-to-day activity, will carry far more weight than the wording used to describe payment terms.

What the PGMOL case tells us about mutuality and control

The Supreme Court's decision in HMRC v Professional Game Match Officials Ltd (PGMOL) is the leading modern authority on how mutuality of obligation and control should be assessed for individual contracts. The court unanimously dismissed PGMOL's appeal, and the press summary confirms that mutuality of obligation and control were present in the referees' individual engagements. The Court of Appeal's earlier judgment in the same litigation also examined these two factors closely, as set out in the full judgment.

Crucially, the Supreme Court made clear that finding mutuality and control does not, by itself, determine employment status. Those are minimum requirements that must be present before a contract can be one of employment, but their presence does not automatically tip the balance. The wider picture, including how the engagement actually operated, still has to be weighed.

This is directly relevant to how a payment by results IR35 clause should be read. A milestone-based payment structure might suggest reduced day-to-day control and a genuine deliverable-based relationship. But if, in practice, the client still directs how, when, and where the work is done, and there is an ongoing obligation to offer and accept further work, the payment mechanism alone will not override those realities.

What this means for reviewing your own contract

No primary HMRC guidance or legislation specifically states that a standalone payment by results clause determines IR35 status. Instead, such wording sits within the broader question of actual contractual obligations, control, and whether the engagement is, in substance, one of employment for tax purposes. A milestone or outcome-based payment clause is one data point among many, alongside substitution rights, control, financial risk, and how integrated the contractor is into the client's organisation.

Because status is fact-specific, it depends on the real working practices behind the paperwork, not just the clause itself. A government resource on off-payroll working recommends that contractors check employment status for tax using HMRC's online tool and keep the result as a record, which can be a useful reference point when reviewing a new contract.

If a client has stated in an SDS that the role is outside IR35 partly on the basis of a payment by results structure, that is evidence provided by the client of their own assessment, not a platform verification and not a guarantee. HMRC's CEST tool output is not determinative either; it is one input into a wider judgement.

Contractors weighing up a new milestone-based contract may find it useful to browse outside-IR35 contracts currently listed, or check day-rate benchmarks for outcome-based roles in their sector, alongside a proper contract review.

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.