IR35 Status Checker

IR35 — formally the off-payroll working rules — determines whether a contractor working through an intermediary, typically a Personal Service Company (PSC), should be taxed as an employee. The rules exist to tackle "disguised employment": work that is employee-like in substance but routed through a company to pay less tax. If an engagement is inside IR35, the fee-payer must deduct Income Tax and employee National Insurance at source before paying the PSC, and the contractor loses access to dividend-based pay — HMRC estimates a 15–25% cut in take-home compared with an equivalent outside-IR35 engagement. There are no structural rule changes for 2026/27, but HMRC enforcement has stepped up sharply, with compliance campaigns targeting the tech, financial services and defence sectors. The checker assesses all six HMRC status factors and gives a weighted determination in minutes.

### Worked Example: Assessing an Engagement Across the Six Factors

**Scenario**: a software contractor's PSC has a 12-month contract with a large bank. The bank sets working hours, requires the contractor personally (no substitution clause), supplies a laptop, and the contractor sits in a delivery team under a bank manager.

**Factor-by-factor**: 1. **Control** — the client dictates how, when and where work is done → inside indicator 2. **Substitution** — no genuine right to send a substitute → inside indicator 3. **Equipment** — client-supplied kit → inside indicator 4. **Financial risk** — paid a fixed day rate with no rectification-at-own-cost exposure → inside indicator 5. **Integration** — managed alongside employees in the client's structure → inside indicator 6. **Exclusivity** — contract restricts concurrent clients → inside indicator

**Determination**: firmly **inside IR35**. Because the client is a large business, it must issue a Status Determination Statement (SDS) and the fee-payer must deduct tax and NI at source. Flipping just the substitution and financial-risk factors — a genuine, exercisable substitution right and fixed-price deliverables with defects corrected at the contractor's cost — would move the same engagement materially towards an outside determination.

Since April 2021, medium and large private-sector clients — and all public-sector clients — are responsible for issuing a Status Determination Statement with reasons; blanket assessments are not valid. Only where the end client is small does the contractor's own intermediary still decide. A company is small if it meets two of three criteria: turnover of £15 million or less, balance sheet total of £7.5 million or less, and 50 or fewer employees (monetary thresholds raised from £10.2m/£5.1m for accounting periods beginning on or after 6 April 2025). Contractors can formally ask a client to confirm whether it qualifies as small, and supply-chain liability can pass upstream if the fee-payer cannot show reasonable care in the SDS.

If you're issued an inside-IR35 SDS you believe is wrong, raise a formal disagreement with the client. The client must respond within 45 days with either a revised determination or written reasons for keeping the original. Meanwhile the determination stands, so gather evidence about actual working practices — substitution actually exercised, own equipment, concurrent clients, financial risk — because HMRC and tribunals look at how the engagement really operates, not just the contract wording.

Get specialist advice before signing if the engagement is long, exclusive and embedded — the expensive disputes almost always start there. Advice is also worth it when a client refuses to reconsider a disputed SDS within the 45-day window, when HMRC opens a compliance check (they can reach back six years), or when you're restructuring pay between salary and dividends after an inside determination. Contract reviews are cheap relative to a back-tax assessment with penalties.