IR35 Advisory UK —
Protect Your Outside IR35 Status

IR35 (the off-payroll working rules) determines whether your engagement through a personal service company (PSC) is genuinely self-employment or is effectively disguised employment. If inside IR35, your PSC income is treated as employment income — subject to PAYE and NIC at the same rates as an employee. If outside IR35, you pay Corporation Tax on company profits and take dividends tax-efficiently. The difference can be tens of thousands of pounds in annual tax.

Since April 2021, for medium and large private sector clients and all public sector bodies, the client (not the contractor) determines IR35 status and issues a Status Determination Statement (SDS). For small private sector clients (two of: turnover below £10.2m, balance sheet below £5.1m, fewer than 50 employees), the contractor’s PSC determines its own status. We advise on which rules apply to each engagement and ensure the correct process is followed.

HMRC IR35 investigations can be extremely costly — retrospective PAYE and NIC assessments, interest and penalties potentially going back 6 years (20 years for deliberate non-compliance). We provide full enquiry support — reviewing the facts, preparing technical responses, negotiating with HMRC and representing you at tribunal if necessary. A written status opinion prepared before the enquiry significantly strengthens your position.

HMRC’s Check Employment Status for Tax (CEST) tool can be used to generate an IR35 determination, and HMRC has confirmed it will stand by CEST results used in good faith and with accurate information. However, CEST has been criticised by the Tax Tribunal for not considering all relevant factors (particularly mutuality of obligation). We use CEST as one input in our assessment alongside a full contract and working practices review.

If your client issues an inside IR35 SDS, you have the right to use the client-status disagreement process to challenge it. You must submit your disagreement in writing with supporting reasoning within 45 days. We review all inside IR35 SDSs received by clients and prepare formal disagreement submissions where the determination is incorrect. We also advise on the payroll implications if the inside IR35 determination is correct and confirmed.

The most dangerous IR35 error is relying on a well-drafted contract while actual working practices are inconsistent with it. HMRC assessors look through contract terms to examine how the engagement actually operates — if the contractor works set hours, uses client equipment, attends client meetings as a team member and has never exercised substitution, no contract terms will save the outside IR35 position. We assess both contract terms and actual working practices in every review.

HMRC’s off-payroll investigation programme targets contractors across all day rate levels — not just high earners. IR35 investigations can cover up to 6 years of historical engagements, with PAYE and NIC retrospectively assessed plus interest and penalties. The risk of not having a written status opinion is not justified by the cost of obtaining one. We provide written opinions from £299.

When a client issues an inside IR35 SDS, many contractors simply accept it — not realising they have a formal 45-day disagreement window. An incorrect inside determination that goes unchallenged effectively locks in the PAYE treatment for the engagement. We review all inside IR35 SDSs and prepare formal disagreements where the facts support an outside IR35 position.

Contractors inside IR35 whose PSC income is subject to deemed employment income calculations — but who extract the post-CT profits as dividends — are creating a dual risk: underpayment of the deemed employment liability and dividend income that HMRC may argue should have been PAYE income. Inside IR35 income must be carefully separated from outside IR35 income within the PSC, and extraction structured accordingly.