IR35 (off-payroll working rules)
are the UK’s off-payroll working rules: when a contractor works through their own limited company (PSC) but would be an employee if engaged directly, the engagement is ‘inside IR35’ and employment taxes are due. Since 2021, medium and large clients — not the contractor — determine the status.
How do the IR35 rules work in 2026?
For medium and large private-sector clients and all public bodies, the client must issue a Status Determination Statement (SDS) for every PSC contractor, taking reasonable care. If the role is inside IR35, the fee-payer (often the agency) deducts PAYE and National Insurance before paying the PSC. Small companies remain exempt, leaving status with the contractor.
The 2024 offset reform removed a major distortion: HMRC now credits taxes already paid by the contractor against a client’s liability after a wrong ‘outside’ call. From April 2026, separate umbrella-market legislation makes agencies (or clients, absent an agency) responsible for umbrella workers’ PAYE — closing the loop on non-compliant umbrella schemes.
Who has obligations under IR35?
Responsibility is split along the supply chain:
- Clients (medium/large): assess each PSC engagement with reasonable care and issue the SDS; blanket bans and blanket assessments both create risk.
- Agencies / fee-payers: operate PAYE on inside-IR35 fees; from April 2026 also carry PAYE responsibility for umbrella workers in the chain.
- Contractors: for small-client engagements, self-assess and account for deemed employment income.
Inside-IR35 roles are commonly delivered through a compliant umbrella or an Employer of Record, which employs the contractor and settles UK payroll taxes in full. In supply-chain audits, incomplete SDS records — not wrong determinations — are the most frequent gap we find.
Common mistakes
- Blanket determinations: assessing all PSCs ‘inside’ without individual review fails the reasonable-care duty.
- Missing SDS records: in HMRC reviews, undocumented determinations hurt more than debatable ones.
- Ignoring the 2026 umbrella shift: agencies inherit PAYE responsibility for umbrella workers — due diligence lists need rebuilding.
- Contract-only fixes: substitution clauses nobody uses do not survive a working-practices review.
Reference table
| Status factor | Points inside IR35 | Points outside IR35 |
|---|---|---|
| Control | Client sets how, when, where | Contractor controls method |
| Substitution | Personal service required | Genuine right to send a substitute |
| Mutuality of obligation | Ongoing work expected and offered | Project ends when scope ends |
| Financial risk | None — time-based pay | Fixed-price risk, own insurance, equipment |
Preparing your supply chain for April 2026
For international groups, IR35 is a UK-specific expression of a global trend: pushing employment taxes up the supply chain. Treat the SDS process as standing infrastructure, prefer payment structures where PAYE is verifiably operated, and re-check the chain before April 2026 when umbrella liability shifts to agencies. Access Financial provides compliant UK employment for inside-IR35 and umbrella populations — ask for a supply-chain readiness check.
FAQ
Find answers to our most frequently asked questions below.
What does inside IR35 mean?
Inside IR35 means the engagement is deemed employment for tax: the contractor would be an employee but for the intermediary company, so income tax and National Insurance must be deducted from the fees. It does not grant employment rights by itself — which is why many inside-IR35 contractors move to umbrella or EOR employment, gaining rights alongside the tax treatment.
Who determines IR35 status in 2026?
For engagements with medium or large clients and public bodies, the client determines status and must issue a Status Determination Statement with reasonable care; the fee-payer then applies the correct tax treatment. Where the client is small under the Companies Act thresholds, the contractor’s PSC remains responsible for its own assessment.
What changes for umbrella companies from April 2026?
Legislation shifts responsibility for operating PAYE on umbrella workers’ pay to the recruitment agency that supplies them (or to the end client where there is no agency). The aim is to eliminate tax-fraud schemes run through non-compliant umbrellas; practically, agencies now need due diligence on every umbrella in the chain — or consolidation to vetted providers.