HMRC will look at your working relationship, not just the contract.

When assessing whether IR35 applies, HMRC will not rely solely on the written contract but will look closely at the actual working relationship between the individual and the client. Key factors include whether the client controls how, when, and where the work is done, and whether the individual has the genuine right to send someone else (a substitute) to carry out the work. HMRC will also consider if there is mutual obligation — meaning the client is expected to provide ongoing work and the worker is expected to accept it — as well as whether the individual bears any financial risk typical of running a business, such as investing in equipment or being responsible for correcting mistakes at their own cost. Another important consideration is whether the individual works as part of the client’s team, following internal policies and procedures, which may suggest they are effectively integrated like an employee.

The responsibility for determining whether IR35 applies depends on the size and type of the client. If the individual provides services to a small private company, they are responsible for assessing their own status and ensuring the correct tax treatment. However, if the work is for a public sector body or a medium or large private company, the client must carry out the status assessment and issue a Status Determination Statement (SDS). Where IR35 applies, tax and National Insurance will usually be deducted at source, much like an employee’s pay. Given the complexity of these rules and the range of factors involved, it is often advisable to seek professional guidance to avoid unexpected tax liabilities.

Key factors for IR35 HMRC looks at:

When HMRC investigates potential IR35 status, they carefully examine several key factors to determine whether a contractor’s engagement resembles employment. Primarily, they assess the level of control the client exercises over the contractor’s work. This includes looking at how much direction the client provides regarding how, where, and when the contractor performs their duties. A significant degree of control, such as being dictated specific methods or schedules, increases the likelihood of an IR35 risk. Another crucial element is whether the contractor has the ability to send a substitute to complete the work – a lack of substitution strongly suggests a traditional employment relationship. Finally, HMRC will analyze the nature of the relationship by looking for mutual obligation – whether the client is fundamentally reliant on the contractor’s work and the contractor is obligated to accept the work provided.

The Current Rules of IR35 at a Glance

Furthermore, HMRC considers the contractor’s level of integration with the client’s organization. If the contractor functions as a genuine part of the client’s staff, attending team meetings, sharing resources, and operating under the same reporting structure, it’s a strong indicator of IR35. Finally, the type of business activity undertaken by the contractor is important. A contractor taking on business risks, such as investing in equipment or marketing, carries a lower risk of being deemed inside IR35, whereas a contractor with minimal financial risk is more likely to be evaluated as being effectively employed.

Why Is IR35 So Complicated?

It’s not black-and-white. Even HMRC struggles to apply IR35 rules correctly. Do not make guesswork for correct tax status, seek professional advice, consult your accountant. Important elements and every subtle details shall be examined to correctly determine your correct tax position. As we say always, it is your own job to care for yourself the most and it is indeed your statutory duty to report and file right tax in the UK.

Seek Professional Guidance

If you have questions about whether yourself is IR35 or self employment, no more quesswork, contact Elaga Accountancy now, we’d be happy to assess your company’s situation and walk you through your options. Don’t rely solely on your gut feeling or a random forum post. The team at Elaga Accountancy brings years of real-world experience to help you make confident, informed decisions, aligned with both your business structure and personal goals.

***Contact us to learn more.

#IR35 # OffPayroll #OffPayrollWorkingRules #DisguisedEmployment #SelfEmployed #SelfEmployment #UmbrellaCompany #PayrollService #CEST #SelfAssessment #SelfAssessmentDeadline #SoleTrader #RegisterForSelfAssessment #UKTax #UKTaxReturn #SoleTraderUK #DividendIncome #ForeignIncome #HMRC #TaxReturnHelp #UKAccountants #SelfEmployedTax #5OctoberDeadline #AmIIR35 #AmISelfEmployed