IR35: when do off-payroll rules apply?
Taxed like an employee does not mean protected like one. Check who must decide your status, what can come off your fee and how to challenge it.
An agency says your next care shift must go through an umbrella. A hotel puts you on its rota but tells you to invoice through your own company. Check who employs you and who pays you. IR35 can tax you like an employee without giving you rights against the client.
- 45 days
- client’s deadline to respond to a disagreement
- 2 of 3
- company size criteria, with accounting-year rules
- No 5%
- no running-cost allowance under client-led rules
- Tax only
- IR35 does not itself establish employment rights
Does IR35 apply to me?
IR35 covers services supplied through an intermediary, usually your own limited company, known as a personal service company or PSC. Certain partnerships also qualify. The rules began on 6 April 2000; client-led assessments started for public authorities on 6 April 2017 and medium or large private clients on 6 April 2021.
A cleaner, carer or driver hired directly as a sole trader is outside IR35’s scope. Ordinary status rules still decide whether PAYE and worker rights apply. Employment by an umbrella company is normally a different arrangement from working through your own PSC.
The tax test asks whether you would be an employee if hired directly. It considers personal service and substitution, control, obligations to provide and perform work, financial risk, equipment and whether you run a business on your own account. Assess each engagement; one can be inside IR35 while another is outside.
Example: two cleaning arrangements
A cleaner’s company quotes a fixed price for deep-cleaning flats, supplies equipment, can send a qualified replacement and must correct faulty work at its expense. Those facts point towards self-employment.
A cleaner working through a company who must personally work the hotel’s shifts under its housekeeping manager looks more like an employee for tax purposes. These are illustrations, not verdicts. Check the contract and actual working arrangements.
Who decides: you, the client or the agency?
The client is the organisation receiving your services, not necessarily the agency paying your company. The agency’s size does not decide which rules apply.
| Client | Who decides | Rules | What to obtain |
|---|---|---|---|
| Public authority, such as an NHS trust or council | Client | Chapter 10 | Status Determination Statement with reasons |
| Medium or large private or voluntary-sector client | Client | Chapter 10 | Status Determination Statement with reasons |
| Small private or voluntary-sector client | Your intermediary | Chapter 8 | Written size confirmation; keep your assessment |
| Wholly overseas client with no UK residence or permanent establishment | Your intermediary considers whether IR35 applies | Chapter 8 | Evidence of the client’s UK connection, or lack of one |
The size thresholds need a date
For corporate clients, including limited liability partnerships, the test normally requires at least two size limits to be exceeded over two consecutive financial years. Use accounts whose filing period ended before the tax year begins. Group rules and small-company exclusions can matter.
For financial years beginning before 6 April 2025, the limits are turnover above £10.2 million, balance-sheet assets above £5.1 million and an average of more than 50 employees. For financial years beginning on or after that date, the money limits rise to £15 million and £7.5 million. The employee limit is unchanged.
HMRC says that, for a usual 12-month financial year, the earliest tax year affected by the transitional provision is 2027/28. Do not apply the new figures to an October 2026 engagement without checking the accounting years. Higher limits can make a medium-sized client small, returning responsibility to your intermediary.
Non-corporate clients, including ordinary partnerships and individual traders, have separate turnover tests. Their £10.2 million limit remains; the relevant year depends on the entity.
Ask for written size confirmation if relying on the small-client exception. For an overseas client, check UK residence and permanent establishment, including any branch or office. Overseas ownership alone is not an exemption. HMRC’s guidance explains both exceptions.
What the client’s written decision must contain
Under Chapter 10, the client must take reasonable care and give you and its contractual counterparty an SDS with reasons. It must assess the contract and actual working practices, whether the result is inside or outside.
“All contractors are inside” without considering the facts is not reasonable care. HMRC permits group determinations where contractual terms and actual working conditions are identical. If yours differ, ask how the client accounted for that.
Without an SDS passed to both recipients, or without reasonable care, the client retains deemed-employer responsibilities. For an inside engagement, these include employee tax deductions and employer National Insurance. An agency that fails to pass the SDS down the chain can also take on liability. It is not a tax-free period for you.
HMRC’s Check Employment Status for Tax tool, or CEST, is optional. HMRC stands by its result only where accurate information is supplied and instructions followed. CEST is help, not law. Ask for the answers as well as the result.
What inside IR35 means for your pay
Under Chapter 10, the fee-payer is usually the agency or client paying your intermediary. It calculates the deemed direct payment by removing VAT and qualifying direct material costs and expenses from the chain payment. It then deducts Income Tax and employee National Insurance.
Employer National Insurance and any Apprenticeship Levy are the fee-payer’s costs. HMRC explicitly says they cannot be deducted from the payment to your intermediary. A business may offer a lower contract rate to cover its costs before you agree terms. That is different from taking employer taxes off an agreed PSC fee.
There is no 5% running-cost allowance under Chapter 10. It remains in Chapter 8 deemed-payment calculations, including qualifying small-client and wholly overseas engagements. It is not a 5% discount on your personal tax bill.
Example: a care contractor’s £3,000 monthly fee
Use the 2026/27 rates for England, Wales or Northern Ireland. Assume regular monthly payments, no qualifying expenses, the full standard personal allowance, category A National Insurance and no other income or deductions. The £3,000 fee excludes VAT.
Income Tax is £390.50, using the £1,047.50 monthly allowance and 20% basic rate. Employee National Insurance is £156.16, using the £1,048 monthly threshold and 8% rate. The company receives £2,453.34 of the fee.
The fee-payer owes £387.45 employer National Insurance, at 15% above the £417 monthly threshold. It pays that on top, not out of your £3,000. Any levy due is also its cost.
The company receipt is not automatically personal take-home pay. Your company must account for payments to you and the available double-taxation relief. Actual payroll depends on your tax code and circumstances.
These HMRC rates apply from 6 April 2026 to 5 April 2027. See our payroll guide for employee deductions and employer costs.
If the chain got the tax wrong
A wrong outside-IR35 decision can leave the deemed employer owing unpaid payroll taxes, interest and potentially penalties. Liability can move along the chain under the rules; it does not automatically fall on you.
For relevant PAYE assessments from 6 April 2024, HMRC can set off eligible tax already paid by you or your intermediary against the deemed employer’s liability. This covers relevant payments from 6 April 2017, not every tax or National Insurance payment. Keep tax records and get advice before claiming a repayment.
Tax status is not employment rights
An inside-IR35 decision does not itself make you an employee of the client. It also does not prove that you have no employment rights. Those depend on the actual relationships and employment-law tests.
Workers have minimum wage and paid holiday rights without needing to be employees. Employees have additional rights, including Statutory Sick Pay, family leave, redundancy and unfair dismissal protection, subject to eligibility. See our employment-status guide before accepting “you’re a contractor” as the answer.
How to challenge a status decision
Under Chapter 10, you or the deemed employer can dispute either conclusion. Chapter 8 does not have this client-led process.
- Get the evidence. Ask for the SDS, reasons and CEST answers. Save your contract, rotas and messages.
- Write to the client. Identify the disputed facts or conclusions and attach evidence. Copy the agency. Raise it before the final payment in the chain.
- Keep proof of delivery. The client has 45 days from receipt to uphold its conclusion with reasons or issue a new SDS and notify the relevant parties.
- Check payments during the review. The original decision applies. Missing the 45-day duty transfers deemed-employer responsibility to the client until it complies. Silence does not make you outside IR35.
- Check rights deadlines separately. Get tax advice for IR35 and employment advice for missing pay. Do not wait for this review to finish.
This is a client review, not an independent appeal. The deadline guarantees a response duty, not a different decision.
Told to use an umbrella company?
An agency can offer work through an umbrella, but that does not excuse unlawful deductions. Ask whether direct PAYE is available before agreeing terms.
An umbrella normally employs you. Its assignment income funds employer costs and its margin before gross wages are calculated. Income Tax and employee National Insurance then come off your wages. An assignment rate is not your gross hourly pay.
When comparing an umbrella care or warehouse shift with direct PAYE work, ask for both rates. Employer National Insurance can be funded from assignment income, but must not be deducted from your gross wages as employee tax.
Ask for the Key Information Document before agreeing terms, your written employment particulars and an itemised payslip each payday. Check assignment income against gross wages, then gross against net pay. Employer costs, margin, pensions and holiday-pay arrangements should be explained.
Since 6 April 2026, the relevant recruitment agency, or the end client where it contracts directly with the umbrella without an agency, is jointly and severally liable for covered unpaid umbrella PAYE and National Insurance. This tax protection is in force. It does not create a new entitlement to holiday pay; umbrella employees already have employment rights, subject to the usual conditions.
Reject promises of unusually high take-home pay through loans or supposedly tax-free payments. HMRC warns about these avoidance schemes. Read our umbrella pay guide and agency workers’ rights guide together.
Scotland, Wales and Northern Ireland
The IR35 framework applies across the UK. Scottish taxpayers pay Scottish Income Tax rates on relevant deemed earnings; National Insurance is not devolved. The pay example above is therefore not a Scottish calculation.
Employment law is devolved in Northern Ireland. The Fair Work Agency and planned umbrella employment-business regulation discussed here concern Great Britain. Northern Ireland has separate agency regulation and an Employment Agency Inspectorate. For employment-rights advice there, use the Labour Relations Agency rather than Acas. See our Northern Ireland guide.
If your pay or rights are missing
Ask in writing who employs you, who pays you and why a deduction was made. Keep the contract, invoices, payslips, bank payments and rotas. Challenge tax status with the client; seek missing wages or holiday pay from the party owing them.
For employment advice in Great Britain, contact Acas, Citizens Advice or a law centre. Ask your union about representation and cover. Consider UNISON in health and care, or Unite or GMB in hospitality and logistics. Check who organises your workplace and whether membership covers an existing dispute.
Report suspected tax avoidance or unpaid payroll tax to HMRC. Minimum wage underpayment has a government pay and work rights complaint route; an employment tribunal can decide eligible wage and holiday claims. A complaint to an agency, a regulator or HMRC does not itself protect a tribunal deadline.
For example, before early-conciliation adjustments, Acas gives 29 December 2026 as the deadline for a pay problem on 30 September 2026, and 31 March 2027 for one on 1 October 2026. Do not choose the longer limit just because you are reading this after the change.
Questions people ask
Can the client put everyone inside IR35?
Only after assessing the facts. A group assessment can be acceptable for identical terms and working conditions. A blanket verdict that ignores differences fails reasonable care.
Does inside IR35 give me holiday or sick pay?
Not by itself. Employment-law status and each entitlement’s conditions decide that. An inside decision does not rule out a separate rights claim.
My client is small. Am I outside IR35?
Not necessarily. The exception changes who assesses you, not the tax-status test. Your intermediary must consider Chapter 8 and account for any deemed payment.
What if I never get an SDS?
Under Chapter 10, ask for one in writing. Without a statement shared with both recipients and reasonable care, the client retains deemed-employer responsibilities. You are not automatically outside IR35.
Can employer National Insurance come off my fee?
Not from the agreed Chapter 10 payment to your intermediary. The fee-payer owes it on top. An umbrella assignment rate is different from gross wages.
Does CEST settle the matter?
No. It is optional, and HMRC’s commitment depends on accurate inputs and correct use. CEST does not decide employment rights.
Sources
- Understanding off-payroll working, HMRC
- Off-payroll working for clients, HMRC
- ESM10006: client size and wholly overseas clients, HMRC Employment Status Manual
- ESM10006A: size-threshold changes and transitional timing, HMRC Employment Status Manual
- ESM10014: reasonable care, including group determinations, HMRC Employment Status Manual
- Fee-payer responsibilities and deemed direct payments, HMRC
- ESM9070: Chapter 8 5% deduction, HMRC Employment Status Manual
- Status Determination Statements, part 9, HMRC
- Client-led disagreement process, part 10, HMRC
- Check Employment Status for Tax, HMRC
- Rates and thresholds for employers, 2026/27, HMRC
- Calculation of PAYE liability in off-payroll non-compliance, HMRC
- Finance Act 2026, section 24: umbrella companies, legislation.gov.uk
- Social Security Contributions (Umbrella Companies) Regulations 2026, legislation.gov.uk
- Umbrella companies: tackling non-compliance, including the estimate of 700,000 workers, HMRC policy paper
- Umbrella companies factsheet: planned employment-business regulation, Department for Business and Trade
- Key Information Document guidance for umbrella-paid agency workers, GOV.UK
- Spotlight 60: umbrella-company tax avoidance warning, HMRC
- Off-payroll working: treating people fairly, 2020, House of Lords Finance Bill Sub-Committee
- Employment tribunal time limits, updated 1 October 2026, Acas
- Acas helpline and advice, Acas
- Pay and work rights complaints, GOV.UK
- Employment status reform and protections for the self-employed: consultation, published 14 October 2026, Department for Business, Innovation, Science and Trade
- Employment status reform and protections for the self-employed: consultation document, Department for Business, Innovation, Science and Trade