Navigating IR35 can be a challenge, and we know that the small details often matter most. This in-depth FAQ gathers the most important questions we’ve encountered over the years, serving as your go-to resource for understanding the complexities of IR35.

For a more technical overview of IR35 and off-payroll rules, see our main guide here: IR35 and off-payroll explained.

Click on questions below to jump to the answer you need:

If my contract is ‘outside IR35’, how can my client state that the role is ‘inside IR35’?

Contractors often assume that agreeing to an ‘outside IR35’ contract is a fait accompli.

In practice, under the Off-Payroll Working Rules, medium and large clients are responsible for issuing a status determination based on how the contract role operates in practice.

This includes any terms in the written contract, but also how the role operates in reality – your working practices.

Clients may even consider a role to be ‘inside’ even when it has been presented differently to the contractor by an agency.

The way you account for the income from the contract depends entirely on the IR35 status of that contract. You can still work through a limited company if your work falls within IR35.

What is an SDS, and how does a determination affect my pay?

An SDS, or Status Determination Statement, defines whether an engagement is inside or outside IR35 and explains the reasons for that client’s conclusion.

All medium and large clients must issue an SDS before the start of a new contract engagement.

The SDS directly affects how payments are made. An outside determination usually results in a gross payment to the contractor’s company.

An inside determination usually means that PAYE and employee National Insurance are deducted before the net payment is made to the contractor’s company. Or an umbrella company handles deductions, if the contractor isn’t using their own company.

Who is responsible for IR35 decisions in the supply chain?

The responsibility is split. The end-client makes the IR35 determination and issues the SDS. The fee payer, who is often an agency, is usually responsible for making PAYE deductions where the engagement is inside IR35.

If you’re working through your own company, your accountant will advise you on the income sent into the company and general tax matters such as how to reflect the VAT figures and PAYE deductions already made but has no role in the IR35 determination process.

Can I challenge an inside IR35 decision?

Yes, under the Off-Payroll rules, workers have the right to initiate a formal disagreement process, and ask the client to review an SDS decision.

The client must consider the points you raise and respond, but they are not required to change their decision.

From a tax perspective, the original SDS remains applicable unless the client formally changes their decision.

What kind of information do clients usually rely on when making IR35 decisions?

End-clients will review the terms of the contract, as well as how they believe the contract role will work in a real life situation, i.e. what the contract says needs to match what the contractor does.

Some of the main factors they will look at include: the extent of the client’s control over when, how, and where the work is carried out; the level of integration the contractor will have within the client’s organisation; and whether the worker has the right to supply a substitute if they’re unable to work.

Unfortunately, problems often arise when the role description sold to the contractor differs from reality.

If a role is inside IR35, does a limited company still make sense?

There is no fixed answer to this question, as it depends on the contractor’s personal circumstances.

Clearly, any small tax advantages of working via a limited company are removed if you work on an inside IR35 role.

However, there remain some good reasons to keep the company active. For example, you may work on a variety of both inside and outside roles, or you may co-own the company with your spouse, which still offers some tax planning advantages.

As an Integro Accounting client, we offer our EasySwitch service as standard allowing flexibility between working through your own Limited Company and our recommended Umbrella Company partner.

Why do some clients insist on umbrella-only arrangements?

Since the Off-Payroll rules became law in the private sector in April 2021, responsibility for determining employment status has rested with end clients.

Rather than taking the risk of getting decisions wrong, many larger clients have opted not to engage with contractors via their limited companies, resulting in a surge in umbrella company use.

How reliable is CEST in practice?

CEST – the official employment status tool – is widely used by larger organisations, and where inputs accurately reflect working arrangements, it can produce clear IR35 outcomes.

However, there are many cases where the result is indeterminate. Some industry experts suggest that the tool’s algorithm isn’t complex enough to evaluate status in borderline cases accurately.

This is why we always recommend that all contractors use a professional contract review service before starting a new role.

Can HMRC review older contracts?

HMRC can review prior contract engagements if it believes those roles were mistakenly classified as ‘outside’ IR35.

If you subsequently return to employment or use an umbrella, this does not automatically prevent the taxman from making enquiries into earlier years.

What should contractors clarify before starting a new role?

First, you need to know whether a role is advertised as inside or outside IR35.

These terms are sometimes misused, with ‘inside’ meaning the role is only available if you work via an umbrella company. However, you can still work on an inside IR35 role as a limited company contractor.

If it is ‘outside’, you need to know whether the client is small, medium, or large. If it is medium or large, the client is responsible for determining your IR35 status; if it is small, you, the contractor, are responsible for determining your IR35 status.

If the client is responsible, confirm when the SDS will be issued and how payments will be made before you start work.

What happens if the client delays issuing an SDS?

In practice, contractors can sometimes start work before an SDS has been issued, however it is very rare as it comes with uncertainty, as you won’t know how your income will be taxed before a determination is made. Very few would begin a role without a contract being signed.

Once an SDS is issued, you will know whether the role is inside or outside IR35. If you’re outside, you use your company as usual.

If inside, you will either use an umbrella (by choice or as a client requirement), or your income will be paid to your company after employment taxes have been deducted.

Can my IR35 status change part way through a contract?

This is possible – particularly if you are offered a contract extension, or the scope of your contract changes during the engagement.

In theory, the client can reissue an SDS, which – of course – can change the way your contract income is taxed.

Does working remotely or on-site affect IR35?

Again, location alone cannot determine your IR35 status; it is one of many factors that make up the big picture.

More people work remotely than ever these days, but you can still be under the close control and supervision of your client (both inside IR35 factors), even if you only go into the client’s offices rarely.

Final note:

IR35 is a complex, nuanced topic – and it has been a thorn in the side of the contracting community for over 25 years now.

As accountants, we can help you work out the tax treatment of your contract income – whether your work falls inside or outside of the IR35 rules.

If you need a formal status opinion or specific advice, we can connect you with specialist IR35 advisers.

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