Contract Structures for Interim CFO Services

How an interim CFO engagement is contracted determines who bears the tax risk, what the arrangement actually costs, and how easily either side can end it. In the UK the dominant consideration is the off-payroll working rules — IR35 — which shape everything from the contracting route to the day rate.

This covers the structures available, the IR35 position as it stands, and the contract terms worth getting right before an engagement starts.

IR35 and Off-Payroll Working: The Starting Point

Any UK interim engagement involving a personal service company sits under one of two regimes, and which one applies depends on the size of the client.

Where the client is medium or large

The off-payroll working rules in Chapter 10 of ITEPA 2003 apply. The client is responsible for determining the interim’s employment status, issuing a Status Determination Statement (SDS) with reasons before the first payment, and operating a disagreement process if the interim challenges it. Where the determination is “inside IR35”, income tax and National Insurance are deducted at source by the fee-payer, and the client carries the liability if the determination is wrong.

Where the client is small

The exemption applies, and the original IR35 rules in Chapter 8 of ITEPA 2003 apply instead. Responsibility reverts to the interim’s own company, which determines its status and accounts for tax accordingly. The client issues no SDS and carries no determination liability.

What counts as small

The definition follows the Companies Act 2006. From 6 April 2025 the thresholds were raised — a company is small if it meets at least two of: turnover not more than £15 million (previously £10.2m), balance sheet total not more than £7.5 million (previously £5.1m), and not more than 50 employees (unchanged).

Contracting Routes

Once the IR35 position is understood, the practical routes are these.

Outside IR35, through the interim’s limited company

Where the engagement genuinely reflects a business-to-business arrangement, the interim invoices through their own company and handles their own tax. This suits project-defined work with a clear deliverable, where the interim controls how the work is done and there is no obligation on either side beyond the engagement. It is generally the most tax-efficient route for the interim, and the rate reflects that.

Inside IR35

Where the engagement resembles employment — direction and control by the client, an obligation to provide work and accept it, no genuine right of substitution — income tax and NIC are deducted at source. Many full-time interim CFO roles covering a departure fall here, because the interim is effectively doing an employee’s job temporarily.

Umbrella company

The interim is employed by an umbrella, which invoices the client or agency and operates PAYE. This simplifies compliance for both sides and is common for inside-IR35 engagements. The interim receives employment rights through the umbrella, and the rate needs to accommodate employer costs.

Fixed-term contract of employment

For longer full-time cover — typically maternity, sickness or a gap before a permanent appointment — an FTC removes the IR35 question entirely. The interim becomes an employee for the term, with statutory rights including unfair dismissal protection after the qualifying period and, importantly, protection from less favourable treatment than comparable permanent employees under the Fixed-term Employees Regulations.

Commercial Structures

Day rate

The most common arrangement for interim CFO work. The interim invoices for days worked, typically monthly in arrears, against an agreed rate. It suits engagements where the required time is uncertain, and it keeps both sides flexible. The discipline needed is a clear understanding of what constitutes a chargeable day and how part-days are treated.

Monthly retainer

A fixed monthly fee for an agreed commitment. This gives the client budget certainty and the interim income certainty, and it suits longer engagements where the pattern of work is predictable. It is more common in fractional than interim arrangements, since interim work is usually full-time or near it.

Fixed project fee

A defined sum for a defined outcome — a systems implementation, a funding round, an audit remediation. It transfers delivery risk to the interim and suits scopes that can be specified precisely. Where the scope is likely to move, it produces friction, so it needs a clear change-control mechanism.

What we would advise against

Fee arrangements contingent on outcomes — a percentage of funds raised, of savings delivered, or of sale proceeds. These create incentive problems in a role whose value depends on independent judgement, and they complicate the IR35 position by making the arrangement look less like a straightforward supply of services.

Contract Terms That Matter

Scope and deliverables

Specific enough that both sides know when the engagement is complete, and loose enough that the interim is not obstructed by drafting. For outside-IR35 arrangements this section carries weight, since a genuine business-to-business engagement is defined by what is delivered rather than by hours attended.

Substitution

A right of substitution is one of the key tests of employment status. It must be genuine — an unfettered right that the client cannot unreasonably refuse — rather than a clause included for appearance. In practice, few interim CFO engagements support a real substitution right, which is a reason many sit inside IR35.

Notice

Interim engagements typically carry short notice on both sides — often two to four weeks. Longer notice starts to resemble employment. Clients should also consider what happens if the permanent appointment arrives earlier than expected.

Confidentiality and data

An interim CFO has access to everything. Confidentiality obligations should survive termination, and the arrangement needs to satisfy UK GDPR requirements around access to personal data — particularly payroll. Where the interim will be a signatory or a registered director, that requires separate consideration.

Directorship and statutory exposure

Where an interim CFO is appointed to the board, the general duties under the Companies Act 2006 apply personally, and in a distressed business the wrongful trading provisions of the Insolvency Act 1986 become directly relevant. Many interims decline formal directorship for this reason. Where the role requires it — including FCA-regulated businesses where a senior management function is involved — it should be agreed explicitly and reflected in the rate and in run-off cover.

Insurance

Professional indemnity cover is standard for interims working through their own company, and clients frequently specify a minimum level. Where the interim is a director, directors’ and officers’ cover and the position on run-off after departure both matter.

What This Means Commercially

IR35 status affects cost, not just compliance. An inside-IR35 engagement carries employer National Insurance and, where an umbrella is used, its margin — so the client cost of a given headline rate is higher than for an outside-IR35 arrangement, and interims price accordingly. Comparing two rates without establishing the status position compares different things.

For context on current market rates, our guides to fractional CFO costs and fractional FD costs set out day rate ranges. Interim engagements — full-time or near it, for a defined period — are priced differently from fractional arrangements and are quoted individually.

Frequently Asked Questions

Does IR35 apply to interim CFO engagements?

Where the interim works through a personal service company, yes. If the client is medium or large, the off-payroll rules apply and the client must determine status and issue a Status Determination Statement. If the client is small, the original IR35 rules apply and the interim’s own company determines its status.

What counts as a small company for IR35?

The Companies Act 2006 definition. From 6 April 2025 the thresholds are turnover not more than £15 million, balance sheet total not more than £7.5 million, and not more than 50 employees — meeting at least two. However, a business newly reclassified as small does not fall outside the off-payroll rules immediately; for most, the earliest effect is 6 April 2027.

Who is liable if the status determination is wrong?

Under the off-payroll rules, the client carries the liability for an incorrect determination, and it can pass down the supply chain where parties fail to meet their obligations. This is why determinations should be made with reasonable care and documented, rather than applied as a blanket policy across all contractors.

Is an interim CFO an employee?

It depends on the arrangement. On a fixed-term contract, yes — with statutory rights for the term. Through a personal service company, no, though the engagement may still be inside IR35 for tax purposes, which is a tax determination rather than an employment status one. The two are related but not identical.

Day rate or retainer for an interim CFO?

Day rate is more common for interim work, since the engagement is usually full-time or near it for a defined period, and the required duration is often uncertain at the outset. Retainers suit fractional arrangements with a predictable ongoing commitment better.

How long should notice be?

Typically two to four weeks on both sides. Longer notice periods begin to resemble employment and can weigh against an outside-IR35 determination. Clients should also consider what happens if a permanent appointment is made sooner than expected.

Should an interim CFO be appointed as a director?

Only where the role genuinely requires it, and with the consequences understood. Board appointment brings personal statutory duties under the Companies Act 2006 and, in distress, exposure under the Insolvency Act 1986. Many interims decline directorship; where it is necessary, it should be agreed explicitly and reflected in the rate and insurance arrangements.

References & Further Reading

• GOV.UK — Understanding off-payroll working (IR35)
• GOV.UK — Check Employment Status for Tax (CEST)
• HMRC — Employment Status Manual
• ICAEW — Employment taxes

General information on UK contracting and off-payroll working, not tax or legal advice. Employment status depends on the facts of each engagement and carries significant tax consequences — take professional advice on your own position. Thresholds and rules stated are correct at the time of writing; check GOV.UK for the current position.

Adrian Lawrence FCA

Founder & Managing Director, FD Capital

Adrian Lawrence FCA is the founder of FD Capital and a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW). He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience as a Chartered Accountant and finance leader working with private, PE-backed and owner-managed businesses across the UK. He founded FD Capital in 2018 to connect growing businesses with the Finance Directors and CFOs they need to scale — and personally interviews candidates for senior finance appointments.

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