What is IR35, and when should my business check the off-payroll working rules?

IR35 concerns people who work through an intermediary, usually their own company, but would be employees for tax purposes if engaged directly. Who assesses the arrangement depends on the client and engagement. Check the rules before agreeing the contract, rather than relying on the worker having a limited company.

These answers provide general information, not advice tailored to your circumstances. Rules can change and exceptions may apply — speak to the CASS team before making a tax, accounting or financial decision.

Understand what the rules look at

IR35 is commonly used to describe tax rules for work supplied through an intermediary, often a personal service company. The key question is whether the individual would be employed for tax purposes if the intermediary were removed. Having a company, sending invoices or calling someone a contractor does not settle that question. Look at the actual working relationship, including control, personal service, substitution and the wider circumstances. A written contract should reflect what happens in practice. Tax status and employment rights are separate questions, so a tax determination does not automatically establish every employment entitlement or remove the need for employment advice.

Identify who must make the decision

Public sector clients and medium or large private sector clients generally have responsibility for determining status under the off-payroll rules. They must take reasonable care and communicate a status determination statement with reasons. Responsibility for payroll deductions can then sit with the relevant fee payer in the supply chain. For a small private sector client, the intermediary normally remains responsible under the original IR35 rules. Small does not mean the engagement is exempt from consideration. Group structures, overseas arrangements and the applicable client size tests can complicate the position. Establish which regime applies before deciding who should assess or operate deductions.

Check the engagement before work starts

Ask who the end client is, which organisation contracts with the intermediary and who actually pays it. Keep the proposed contract, role description and evidence of the intended working arrangements together. Discuss whether the individual can genuinely provide a substitute, who controls the work and how commercial risk is handled. HMRC's employment status tool may help when its questions are answered accurately, but a result based on incomplete facts is unreliable. Revisit the assessment when the role or working practices change. A new project, extension or different reporting arrangement can justify another review rather than copying a previous decision without checking.

Plan for the practical consequences

If the engagement falls within the relevant rules, the parties need to understand the effect on payments, deductions, reporting and employer costs. Agree how the contractual price and payment process will work before the first invoice is due. Keep determination records and use the applicable disagreement process if a party disputes the conclusion. Avoid promising a particular take-home amount until the treatment has been established. CASS can discuss the accounting and payroll implications within an agreed engagement. A disputed determination, unusual intermediary or complex supply chain may need specialist advice. Raising the issue early makes it easier to resolve responsibilities and avoid unexpected adjustments later.