Contractors and IR35: who decides, and why small clients are different
When a contractor works through their own company, someone must decide whether they would be an employee if hired directly. For most clients that is the client; for small ones, it is the contractor.
The off-payroll working rules, known as IR35, apply when a worker provides services through their own intermediary, usually a personal service company, to a client who would otherwise be their employer. If they would be an employee were it not for the company, tax and National Insurance are due broadly as if they were.
Who decides
- Client decides the status
- Gives a status determination statement
- Whoever pays the company deducts tax and NI
- Must have a way to dispute it
- Contractor’s company decides
- Company pays the tax if caught
- Client has no status duty
- Size test uses the Companies Act
Signs that point to employment
- The client controls how, when and where the work is done.
- The contractor cannot send someone else in their place.
- They are treated like staff, with set hours, line management and equipment.
- The engagement is open-ended rather than for a defined piece of work.
For clients and contractors alike
Review each engagement, not just the contract on paper: HMRC looks at what happens in practice. Keep the reasoning and evidence for each decision, and look again when a role changes.
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This insight is general information, not advice for your circumstances. Talk to us before acting on it.