IR35 Determinations: Who Is Responsible for What in 2026

What do the off-payroll working rules cover?

IR35 is the common name for the UK's intermediaries legislation, now usually called the off-payroll working rules. The rules apply when someone provides their services through an intermediary, typically their own limited company, but would count as an employee for tax purposes if the client engaged them directly. In that case, the engagement attracts broadly the same Income Tax and National Insurance as employment would. An inside IR35 determination is a tax decision only, and it gives the contractor no employment rights. Which version of the rules applies depends on the client:

• Public sector clients have applied the reformed rules in Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003 since 2017. The client makes the status determination, whatever its size.
• Medium and large private and voluntary sector clients have followed the same Chapter 10 rules since April 2021, so the client decides here too.
• Small private sector clients sit outside the reform. The contractor's own company decides whether IR35 applies under the original Chapter 8 rules and accounts for any tax due.

A private sector company counts as small if it meets at least two of three conditions covering annual turnover, balance sheet total and headcount, with the headcount limit set at 50 employees. The financial limits rose in 2025, although the change takes time to bite (more on that below). If a client sits near the threshold, document the size assessment rather than assume the answer. The agency's own size makes no difference to its obligations.

Who makes the IR35 determination?

Under Chapter 10, the end client makes the determination. Our original article called the final say a collective effort, which undersold the point. Several teams can and should contribute, but the law gives the decision, and the duty to take reasonable care over it, to the client organisation. That duty breaks down into four obligations:

• Decide the status. Work out whether the contractor would be your employee if you engaged them directly, based on the contract and the way the work happens in practice.
• Take reasonable care. Base the conclusion on the facts of the individual engagement, and keep the evidence that shows how you reached it.
• Issue a Status Determination Statement (SDS). Give the contractor, and the party you contract with (usually the agency), a written statement of your conclusion and the reasons behind it.
• Answer disagreements. Give the contractor and the deemed employer a way to challenge the SDS, and respond within 45 days.

If you fail to issue a valid SDS, or issue one without taking reasonable care, you become liable for the PAYE and National Insurance as though you were the deemed employer. HMRC's Guidelines for Compliance on the reformed off-payroll working rules (GfC4) describe what good and poor practice look like. Decisions that put reasonable care at risk include:

• blanket determinations that place every contractor inside IR35 without looking at individual roles
• inaccurate answers entered into HMRC's Check Employment Status for Tax (CEST) tool
• ignoring relevant evidence, including the contractor's own account of the work
• leaving a determination untouched after the working arrangements change

You can ask an agency, a consultancy or a software provider to carry out the assessment for you. GfC4 still holds your organisation accountable for the result, whoever did the analysis.

Where do HR, compliance and talent teams fit?

The client owns the decision, but no single department can make a good one alone. The quality of a determination depends on accurate information from the people closest to the engagement, and each team holds a different part of it:

• Hiring managers know how the work will run day to day: who sets the hours, who directs the method and whether a substitute could step in.
• HR knows how the organisation manages its employees, which helps when a contractor role starts to look like a permanent job.
• Compliance or legal teams interpret the legislation, keep the process in line with HMRC guidance and own the audit trail.
• Talent acquisition and procurement teams manage the supply chain, check the SDS reaches the right party and track changes to an engagement once it starts.

Give one person or team the job of signing off each determination, and train hiring managers as well as HR. The people who understand the work need to take part in the assessment, and in most organisations they sit outside HR.

What does a recruitment agency do under IR35?

Agencies sit in an awkward spot. They do not make the determination, but they can end up paying for it. Under Chapter 10, an agency's role covers three things:

• Passing the SDS on. The agency must pass the client's SDS to the next party in the chain. An agency that fails to do so becomes liable for the tax itself.
• Operating PAYE as the deemed employer. The fee-payer, usually the agency that pays the contractor's limited company, becomes the deemed employer for an inside IR35 engagement. It deducts Income Tax and employee National Insurance, and pays employer National Insurance and the Apprenticeship Levy where it applies.
• Picking up liability from further down the chain. If a deemed employer lower in the chain does not pay, HMRC can in some circumstances transfer the debt to the first agency in the chain and then to the client.

Since April 2024, HMRC can also set off tax that the contractor and their company have already paid on the same income when it corrects an off-payroll error. That reduces the deemed employer's bill without removing it. In practice, the client's process is also the agency's risk. The fee-payer can end up paying for a weak determination, a late SDS or an engagement that has drifted from its original terms. A good agency asks about the engagement before the contractor starts, tells the client when it hears that the work has changed and keeps a record of every SDS it receives and passes on.

What can a contractor do if they disagree with an SDS?

Under Chapter 10 the contractor does not make the determination, but they still carry responsibilities. They should give the client an accurate account of how they work, and they remain responsible for their own company's tax affairs. When the client is small, the contractor's company makes the IR35 assessment itself under Chapter 8. The contractor's main protection is the client-led disagreement process. Either the contractor or the deemed employer can use it before the final payment in the chain, and it runs as follows:

1. The contractor or deemed employer writes to the client setting out why they disagree, with evidence on specific status factors such as control, substitution or financial risk.
2. The client considers the points raised and has 45 days to respond.
3. If the client keeps its conclusion, it must explain its reasons. If it changes its mind, it withdraws the original SDS and issues a new one stating the date it takes effect.
4. If the client misses the 45-day deadline, it takes on liability for the PAYE and National Insurance as the deemed employer until it responds.

The process runs entirely through the client, so the quality of the client's response matters as much as the original decision. A reply that repeats the first SDS without engaging with the evidence will not help anyone if HMRC later reviews the engagement.

What has changed since 2025?

The core IR35 framework looks the same as it did in March 2025. The biggest change sits next to it, in umbrella company supply chains, and a change to the size test will start to move responsibility from 2027. Umbrella company PAYE rules. From 6 April 2026, when an umbrella company employs a worker in a labour supply chain, the agency that contracts with the end client is jointly and severally liable for any PAYE and National Insurance the umbrella fails to pay. If there is no agency in the chain, or the agency closest to the client is connected to the umbrella or based outside the UK, the liability falls on the end client instead. The rules cover new and existing supply chains, and any payment made on or after 6 April 2026. These PAYE rules for labour supply chains sit outside IR35. A contractor employed by a genuine umbrella company is usually outside the off-payroll rules, because the umbrella already runs PAYE on their pay. The same organisations manage both arrangements, though, often in the same supply chain, so umbrella checks belong in the same governance process:

• Map every supply chain and record where umbrella companies sit.
• Check umbrella providers before you use them and at regular intervals after that, including evidence that they pay the PAYE they deduct.
• Review contracts so they cover PAYE obligations, information sharing and what happens if an umbrella defaults.

Company size thresholds. For financial years beginning on or after 6 April 2025, the small company limits rose to £15 million turnover (from £10.2 million) and a £7.5 million balance sheet total (from £5.1 million). The off-payroll size test looks back at completed financial years, so the earliest the change can affect a client is the 2027/28 tax year. Clients that drop into the small category will move from Chapter 10 to Chapter 8, and the determination will pass back to the contractor's company. Agencies should ask clients to confirm their size for each tax year rather than rely on last year's answer.

What have recent tribunal cases shown?

IR35 uses the same employment status tests as the rest of UK tax law, so status cases shape how HMRC, tribunals and clients approach determinations. Two significant cases have concluded since the original article:

• George Mantides Ltd v HMRC [2025] UKUT 124 (TCC). The Upper Tribunal decided that a locum urologist's 2013 engagement at Royal Berkshire Hospital, provided through his own company, would have been employment had he worked for the hospital directly. It found errors in how the First-tier Tribunal had built the hypothetical contract, but still reached an inside IR35 conclusion once it looked at the relationship as a whole. The dispute took twelve years to settle around six months of locum work.
• Professional Game Match Officials Ltd v HMRC [2026] UKFTT 654 (TC). The Supreme Court held in 2024 that football referees' match engagements had enough mutuality of obligation and control to move to the final stage of the employment test, and sent the case back. In May 2026 the First-tier Tribunal weighed the whole relationship and found the referees self-employed, and HMRC chose not to appeal. PGMOL is not an IR35 case, and a First-tier decision binds no other tribunal, but it is the first to apply the Supreme Court's approach in full.

Read together, the cases point to three lessons for anyone making determinations:

• No single factor decides status. Tribunals weigh control, substitution, mutual obligations, financial risk and integration together. In PGMOL, the tribunal gave little weight to control that came from regulation and professional standards rather than day-to-day management.
• Written terms and working practice need to match. Tribunals rebuild the hypothetical direct contract from the paperwork and from how the work happened, and a clause that never operated in practice carries little weight.
• Each engagement stands on its own facts. At the First-tier Tribunal in 2019, Mantides' two hospital engagements from the same year received opposite outcomes: Royal Berkshire inside IR35, Medway Maritime outside.

For clients, the third point is the strongest argument against blanket determinations. Two engagements that look alike on paper can land on different sides of the line.

How to build an IR35 process that stands up to scrutiny

HMRC tests whether you took reasonable care, and your records are how you show it. A process that holds up starts before the contractor's first day and carries on for as long as the engagement runs:

1. Map the supply chain. Confirm whether the contractor works through their own limited company, whether an umbrella company is involved and whether your organisation falls within Chapter 10.
2. Collect the contract and the working practices. Ask the hiring manager how the work will run, as well as what the contract says. HMRC looks at both, and written terms cannot override what happens day to day.
3. Assess the engagement on its own facts. Look at personal service and substitution, control over how the work is done, mutual obligations, financial risk, equipment, integration into your teams and whether the contractor runs a business of their own.
4. Use CEST with care. HMRC stands by a CEST result only when the information entered is accurate and in line with its guidance. Treat an "unable to determine" result as a prompt for further analysis or specialist advice. Re-running the tool with adjusted answers until the result changes is the opposite of reasonable care.
5. Issue the SDS and keep the evidence. Send the SDS to the contractor and the party you contract with, and keep the assessment, any CEST output, the contracts, correspondence and proof of delivery.
6. Review the determination when the work changes. Reassess if duties, supervision, location or substitution arrangements change, and schedule periodic reviews for longer engagements.
7. Check your suppliers and contracts. Audit the agencies and umbrella companies in your chain, and make sure contracts set out who passes on the SDS, who operates PAYE, how information is shared and who reports a change in working practices.

Step 6 catches more problems than people expect. A software architect hired to deliver a defined platform design, with control over their own methods and a genuine right to send a substitute, may sit outside IR35. Six months later the same person might have a line manager, fixed hours and a seat in the permanent team, and at that point the original determination no longer describes the engagement. Contract wording helps only when it matches reality. Defined deliverables, control limited to outcomes and a workable substitution right can support an outside IR35 conclusion if the engagement runs that way. A substitution clause the client would never accept in practice, or a deliverables schedule attached to what is a fixed-hours role, will not survive a tribunal that looks at the whole relationship.

IR35 FAQs

Does the recruitment agency have the final say on IR35? No. Under the off-payroll working rules, the end client makes the determination. An agency can gather information, raise concerns and advise, but the legal responsibility for the decision stays with the client. Does an inside IR35 determination make a contractor an employee? No. It applies employment-style tax treatment to the contractor's fees. Employment rights depend on a separate legal test. Can a business decide that all its contractors are inside IR35? A business can choose how it engages people, including a decision to stop using limited company contractors. A blanket inside IR35 determination is a different matter: HMRC warns that conclusions which ignore the facts of individual engagements may fail the reasonable care test. A group determination can work for roles with the same terms and working practices. How long does a client have to respond to an SDS disagreement? 45 days from receiving the contractor's or deemed employer's representations. If it misses the deadline, the client becomes liable for the tax as the deemed employer until it responds. Do the 2026 umbrella company rules change IR35? No. They are separate PAYE rules that took effect on 6 April 2026. They make the agency that contracts with the client, or in some cases the client itself, jointly liable for PAYE that an umbrella company fails to pay.

Getting IR35 responsibility right

Collaboration still matters. Hiring managers, HR, compliance and talent teams each hold part of the information a sound determination needs, and a good agency makes the process easier to run. The decision and the reasonable care duty belong to the client, and the umbrella rules have widened the financial risk that agencies and clients carry across the supply chain. If you engage contractors and want a clearer view of where your responsibilities sit, get in touch with our team. Our Contract Managed Service brings contractor management, compliance and cost control into one consistent model, and our contingent recruitment service covers contract technology hiring. This article gives general information on the UK rules as at November 2026. It is not tax or legal advice on any specific engagement.