IR35 is one of the most important pieces of tax legislation affecting contractors in the UK. Introduced to prevent “disguised employment,” IR35 ensures that individuals working like employees but operating through limited companies pay the correct amount of tax and National Insurance. IR35 checks are the process used to determine whether a contractor falls inside or outside IR35, and the outcome can significantly impact income, tax obligations, and working arrangements.

For UK contractors, understanding IR35 checks is essential to staying compliant with HMRC, protecting earnings, and avoiding unexpected penalties. With rules tightening over recent years, both contractors and businesses must take IR35 compliance seriously.

Understanding IR35 and Its Purpose

IR35 legislation was introduced by HMRC to address situations where contractors provide services through intermediaries, such as personal service companies, but effectively work as employees. Without IR35, these individuals could pay less tax than employees doing similar roles.

The purpose of IR35 is to create fairness in the tax system by ensuring that workers who operate like employees are taxed like employees. IR35 checks help determine whether a contractor’s engagement should be treated as employment for tax purposes or as genuine self-employment.

What Are IR35 Checks

IR35 checks involve assessing a contractor’s working arrangement to decide whether it falls inside or outside IR35. These checks consider both the written contract and the actual working practices. HMRC places strong emphasis on how the work is carried out in reality, not just what is stated on paper.

An IR35 check typically examines factors such as the level of control the client has over the contractor, whether the contractor can send a substitute to do the work, and who bears financial risk. These checks can be carried out by contractors themselves, end clients, or specialist compliance providers.

Who Is Responsible for IR35 Checks

Responsibility for IR35 checks depends on the type of organisation involved. For private sector medium and large businesses, the end client is responsible for determining the IR35 status of contractors. They must issue a Status Determination Statement explaining their decision.

For small private sector clients, responsibility usually remains with the contractor. In the public sector, IR35 responsibility has sat with the end client for several years. Understanding who is responsible is crucial, as errors can result in tax liabilities and penalties.

Key Factors Considered During IR35 Checks

IR35 checks focus on several core employment status tests used by HMRC. Control is one of the most important factors and looks at whether the client controls how, when, and where the contractor works. High levels of control suggest employment.

Substitution is another key factor. If a contractor has the genuine right to provide a substitute and does so in practice, this supports an outside IR35 status. Mutuality of obligation is also considered, examining whether the client is obliged to offer work and whether the contractor must accept it.

Financial risk, provision of equipment, and integration into the client’s business also play a role. No single factor determines IR35 status; instead, HMRC looks at the overall picture.

Why IR35 Checks Matter for Contractors

IR35 checks matter because they directly affect a contractor’s take-home pay. Contractors found inside IR35 are taxed under PAYE rules, meaning Income Tax and National Insurance are deducted at source. This often results in lower net income compared to operating outside IR35.

Beyond income, IR35 status impacts working flexibility and business planning. Contractors inside IR35 may still lack employment rights such as holiday pay or sick pay, despite being taxed like employees. This makes accurate IR35 checks vital for fair treatment and financial stability.

Consequences of Getting IR35 Checks Wrong

Incorrect IR35 determinations can lead to serious consequences. HMRC can investigate past engagements and demand backdated tax, National Insurance contributions, interest, and penalties. These costs can be substantial and damaging for contractors and businesses alike.

For contractors, a wrong determination can disrupt cash flow and damage relationships with clients. For end clients, errors can lead to reputational damage and increased scrutiny from HMRC. Proper IR35 checks help reduce these risks and provide clarity for all parties involved.

How IR35 Checks Affect Different Contractor Setups

Contractors working through limited companies are most affected by IR35 checks, as the legislation specifically targets intermediary arrangements. Sole traders and agency workers may also be impacted, depending on how their services are provided.

Many contractors now choose umbrella companies to simplify compliance. Working under an umbrella company places contractors on PAYE, automatically addressing IR35 concerns. This option is often chosen when roles are clearly inside IR35 or when contractors want administrative simplicity.

The Role of Professional Support in IR35 Checks

Given the complexity of IR35 legislation, professional support can be invaluable. Specialists can review contracts, assess working practices, and provide clear IR35 status assessments. This reduces uncertainty and helps contractors make informed decisions.

The Infinity Group supports UK contractors and businesses by offering expert guidance on IR35 checks and wider compliance matters. By combining technical knowledge with practical experience, professional providers help ensure determinations are accurate, fair, and defensible in the event of an HMRC review.

HMRC Tools and Their Limitations

HMRC provides the Check Employment Status for Tax tool, commonly known as CEST, to assist with IR35 checks. While useful, CEST has limitations and does not always account for the full complexity of real-world working arrangements.

Many contractors and clients choose not to rely solely on CEST and instead seek independent assessments. Professional reviews often provide more detailed analysis and stronger evidence to support IR35 status decisions.

How Contractors Can Prepare for IR35 Checks

Preparation is key to successful IR35 checks. Contractors should ensure contracts accurately reflect working practices and avoid generic or poorly drafted clauses. Keeping evidence such as emails, project scopes, and substitution arrangements can also be helpful.

Regularly reviewing engagements and seeking professional advice reduces the risk of surprises. Contractors working with The Infinity Group benefit from structured compliance support that helps them stay informed as rules and HMRC guidance evolve.

Why IR35 Compliance Is an Ongoing Process

IR35 compliance is not a one-time exercise. Changes in working practices, contract renewals, or client expectations can all affect IR35 status. Regular IR35 checks ensure continued compliance and reduce exposure to risk.

As HMRC continues to focus on off-payroll working rules, contractors who take a proactive approach are better positioned to protect their income and reputation. Understanding IR35 checks and why they matter is a crucial step in building a sustainable contracting career in the UK.

Final Thoughts

IR35 checks play a central role in the UK contracting landscape. They determine tax treatment, influence income, and shape working relationships between contractors, agencies, and end clients. For contractors, knowledge and preparation are essential to navigating IR35 confidently.

With expert support from providers like The Infinity Group, UK contractors can approach IR35 checks with clarity and confidence, ensuring compliance while maintaining control over their professional future.