You have a contractor who works for you two days a week. They also work for two other agencies. You pay them a flat £2,500 per month, same amount every month, regardless of how many hours they actually put in. It is simple. It is predictable. And it might be the exact thing that puts you inside IR35.

This is the fixed-fee retainer trap. It feels like a clean commercial arrangement. In reality, it can look to HMRC like disguised employment. The fact that the contractor works for other clients is not enough on its own to keep you safe. HMRC looks at the nature of the engagement with you, not the contractor's overall portfolio.

This article is part of our IR35 agency complete guide, covering the specific risks agency founders face when using retainers with contractors who serve multiple clients.

Why a Fixed-Fee Retainer Raises IR35 Flags

IR35 (off-payroll working rules) exists to catch workers who operate through a limited company but would be employees if they were engaged directly. HMRC applies three core tests to determine employment status: control, substitution, and mutuality of obligation (MOO).

A fixed-fee retainer can create problems on all three fronts.

Control

If you pay a flat monthly fee, you are less likely to track hours closely. That sounds harmless. But it can indicate that you control the output, not the time. HMRC views control over what is done and when it is done as a strong indicator of employment. If the contractor is expected to attend weekly stand-ups, use your Slack, and work within your project management system, you are exerting control regardless of the fee structure.

Mutuality of Obligation (MOO)

This is the biggest risk with a retainer. MOO means you are obliged to offer work and the contractor is obliged to accept it. A fixed-fee retainer that runs month after month, with no variation, creates an ongoing obligation. If the contractor cannot refuse a piece of work without risking the retainer, you have MOO. HMRC sees that as employment.

Substitution

If the contractor is personally delivering the work because the retainer is based on their specific expertise, substitution is unlikely. Most fixed-fee retainers are agreed because the client wants that person. If the contractor cannot send a substitute without your approval, you lose one of the strongest defences against IR35.

The Multi-Client Myth

Many agency founders assume that because a contractor works for multiple agencies, they are automatically outside IR35. That is not how HMRC sees it.

HMRC assesses each engagement separately. The fact that your contractor also works for a PR agency in Bristol Harbourside and a web design agency in Manchester Northern Quarter does not change the nature of their engagement with you. If your retainer creates control, MOO, and no genuine substitution, you are inside IR35 with that contractor even if they have ten other clients.

We have seen this tested in tribunals. In Uber BV v Aslam (though not an IR35 case), the Supreme Court made clear that a worker's overall portfolio does not automatically make them self-employed. The same logic applies to IR35. HMRC will look at your specific contract and working practices.

What HMRC Actually Looks At

When HMRC investigates a fixed-fee retainer arrangement, they request three things:

  • The written contract. Does it include a right of substitution? Is it a fixed-term or ongoing? Does it specify deliverables or just time?
  • Working practices. Does the contractor attend your office (or Slack)? Do they use your equipment? Are they included in team meetings? Do they work set days or flexible hours?
  • Financial reality. Is the retainer the contractor's main source of income? Do they bear any financial risk? Do they invoice you monthly without variation?

If the answer to most of these points leans toward "yes, they are treated like an employee", you are inside IR35. The multi-client factor does not override the working practices.

The Status Determination Statement (SDS) Requirement

If your agency is medium or large (meeting two of three criteria: turnover over £10.2m, balance sheet over £5.1m, over 50 employees), you are legally required to issue a Status Determination Statement (SDS) to the contractor before they start work. This applies regardless of whether the contractor works for other clients.

You must also pass the SDS down the chain. If you use an agency or umbrella company, you still need to determine the status and communicate it.

HMRC's CEST tool (Check Employment Status for Tax) can help, but it is directional. It often gives an "unable to determine" result for complex arrangements. If you are using a fixed-fee retainer with a multi-client contractor, CEST may not give you a clear answer. That is when you need professional advice.

How to Structure a Fixed-Fee Retainer Safely

You can use a fixed-fee retainer without triggering IR35. But you need to build in specific features that demonstrate self-employment.

1. Genuine Substitution Clause

The contract must allow the contractor to send a substitute, and that right must be unfettered. If you can veto the substitute, it is not genuine. The contractor should be able to send someone else without your approval, provided they meet the basic skill requirements.

2. Defined Deliverables, Not Time

Instead of "two days per week at £2,500 per month", structure it as "delivery of X, Y, and Z outputs per month for £2,500". This shifts the focus from time to output. It reduces control and MOO.

3. No Employee Benefits

The contractor should not receive holiday pay, sick pay, pension contributions, or any benefits you give your employees. They should invoice you monthly and handle their own tax and NI through their limited company.

4. Financial Risk

The contractor should bear some financial risk. If the work is not delivered to the agreed standard, you should have the right to reduce the fee or terminate the retainer without notice. This demonstrates a commercial relationship, not employment.

5. Regular Review and Variation

A retainer that runs indefinitely without review looks like a salary. Set a fixed term (e.g., three months) with a review at the end. Vary the scope, fee, or deliverables at each review. This breaks the mutuality of obligation.

Real Example: The PR Agency That Got It Wrong

We worked with a PR agency in Soho that had a contractor on a £3,000 monthly retainer. The contractor also worked for two other agencies. The contract was a standard service agreement with no substitution clause. The contractor attended weekly team meetings, used the agency's email, and was expected to be available during core hours.

HMRC opened an IR35 enquiry after a routine compliance check. They argued that the contractor was effectively an employee of the agency, despite having other clients. The agency had to pay £14,700 in back taxes and penalties, plus the contractor's legal fees.

The multi-client factor did not save them. The working practices did.

What to Do If You Already Have a Fixed-Fee Retainer

If you are already using a fixed-fee retainer with a contractor who works across multiple clients, you need to review it now. Do not wait for an HMRC enquiry.

Start with the written contract. Does it include a genuine substitution clause? Does it define deliverables or time? Is it fixed-term or ongoing?

Then look at the working practices. Is the contractor treated differently from your employees? Do they use your equipment? Do they attend team meetings? Do they have set hours?

If the answer raises concerns, you have three options:

  • Restructure the retainer to include the features above (substitution, deliverables, fixed term, financial risk).
  • Move to a time-and-materials model where the contractor invoices based on actual hours worked, with no fixed monthly commitment.
  • End the arrangement if it cannot be restructured and you cannot justify an outside-IR35 determination.

Our ICAEW qualified team at Agency Founder Finance can help you review your contractor agreements and issue compliant SDSs. We work exclusively with agency founders and understand the retainer model inside out. Contact us to discuss your specific situation.

The Bottom Line

A fixed-fee retainer for a multi-client contractor is not automatically outside IR35. The multi-client factor is relevant but not decisive. HMRC will look at the control, MOO, and substitution within your engagement. If those factors point to employment, you are inside IR35 regardless of how many other clients the contractor has.

Structure the retainer carefully. Include a genuine substitution clause. Define deliverables, not time. Set a fixed term with regular reviews. And always issue a compliant SDS before the contractor starts.

For more detail on the full IR35 landscape for agency founders, read our IR35 agency complete guide. It covers everything from CEST tool limitations to tribunal case law and year-end reporting.