IR35 UK
Definition
IR35 UK
IR35 is the United Kingdom rule taxing a contractor who works through an intermediary as an employee when the engagement looks like employment. The client usually decides, not the contractor, and carries the payroll liability for getting it wrong.
The original rule dates from 2000 and put the assessment on the contractor’s own company. Reform moved that burden onto clients — first in the public sector, then across medium and large private-sector organisations.
What did not change is the underlying question. Strip away the company in the middle and ask whether the relationship would look like employment if the worker had been engaged directly.
The rule reaches any United Kingdom client buying personal services through a limited company — which includes plenty of arrangements nobody thinks of as contracting.
Key takeaways
- Medium and large clients determine status; small clients leave it to the worker’s intermediary.
- Size thresholds rose from 6 April 2025 to £15 million turnover and £7.5 million balance sheet.
- A status determination statement must give reasons, not just a verdict.
- From 6 April 2026 agencies and end clients can be liable for umbrella-company payroll failures.
How it works
The rules sit in Chapter 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003. They apply where a worker provides services through an intermediary and the engagement would be employment if the intermediary were removed.
Responsibility depends on client size. For a small client, the worker’s intermediary is responsible for deciding status. For everyone else the client decides and must produce a status determination statement “including the reasons for their determination”.
Size is measured against the Companies Act small-company test. From 6 April 2025 an organisation is medium or large with “Turnover of more than £15million; and Balance sheet total of more than £7.5 million”, with the 50-employee limit unchanged.
| Client type | Who determines status | Who operates payroll |
|---|---|---|
| Public sector | The client | Fee payer in the chain |
| Medium or large private | The client, via a written statement | Fee payer in the chain |
| Small private | The worker’s own intermediary | The intermediary |
| Wholly overseas client | The worker’s own intermediary | The intermediary |
Thresholds are tested over two consecutive financial years, so the population of exempt small clients steps up gradually rather than all at once.
The 2026 change extends the reach further. From 6 April 2026 an agency or end client can carry pay-as-you-earn liability where a worker is supplied through an umbrella company — even though the umbrella runs the payroll itself.
Examples
Off-payroll questions surface in ordinary commercial arrangements rather than in exotic ones. The situations below show where the rule bites and where it does not.
A London insurer engages a developer through their personal service company for eighteen months, sets their hours and provides equipment. The client determines the engagement is inside the rules and the fee payer deducts tax at source.
A consultancy delivers a defined project for a fixed price using its own people and tools, with substitution genuinely permitted. That is a business-to-business service, and the rules do not reach it.
A manufacturer that has just crossed into medium-sized status discovers it must now issue determinations for twenty contractors it previously left alone. The obligation arrived with the balance sheet, not with any change in the work.
A recruitment agency placing workers through umbrella companies reviews its supply chain ahead of April 2026, because liability for the umbrella’s payroll failures now reaches back to it.
Related terms
The rule sits at the intersection of tax, staffing and procurement. The entries below cover the engagement models that determine which side of it an arrangement falls on.
- Employer of record (EOR): a compliant alternative where the provider holds the employment relationship.
- Professional employer organization: co-employment, a different structure with different tax consequences.
- Freelancer: the worker category most affected by status determinations.
- Staff leasing: supplying personnel under client direction, which points strongly inside the rules.
- Data Protection Act UK: another United Kingdom regime a supplier chain has to satisfy.
- UK Bribery Act: the other British statute that reaches third parties acting for you.
- Compliance outsourcing: contracting out the function that should be issuing these determinations.
FAQ
Who decides status under the current rules?
The client, unless it is small or wholly overseas. Small and overseas clients leave the decision with the worker’s own intermediary.
What must a status determination statement contain?
The conclusion and the reasons for it. A bare verdict without reasoning does not discharge the obligation and leaves liability with the client.
Does using an umbrella company remove the risk?
Not from April 2026. Agencies and end clients can be liable for pay-as-you-earn that the umbrella failed to account for.
Can a contractor challenge a determination?
Yes. Clients must operate a status disagreement process and respond within 45 days, either confirming the original conclusion or replacing it.
Does the rule apply to offshore providers?
Not where a genuine outsourced service is bought from a company delivering an outcome with its own people. It targets personal service, not supplier relationships.
What tool does HMRC provide?
The check employment status for tax tool.
Find outsourcing partners that deliver outcomes rather than personal services in the Outsource Accelerator directory.
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