IR35 explained: What it means for employers and contractors in 2026
Whether you're hiring contractors or working as one, IR35 directly impacts how engagements are structured, how tax is handled, and where risk sits.
This guide breaks it down in simple terms, so you can understand what IR35 is, how it works, and what you need to do next.
What is IR35?
IR35 (also known as the Intermediaries Legislation) is a set of UK tax rules designed to determine whether a contractor is:
→ Genuinely self-employed, or → Effectively working as an employee and therefore should be taxed as such
It was introduced to tackle "disguised employment" where individuals operate through a limited company but work in the same way as full-time employees.
Why does IR35 matter more than ever?
Because IR35 isn't just a classification, it directly affects:
How contractors are paid
How much tax is owed
Who is responsible is something goes wrong
Following recent reforms, the responsibility for determining IR35 now typically sits with the End Client, not the contractor.
And if that determination is wrong?
The financial liability can sit with the fee payer, bringing backdated tax, penalties, and HMRC scrutiny.
Who does IR35 apply to?
IR35 applies to:
→ UK-based contractors working through a Personal Service Company (PSC) or umbrella/PAYE structures
→ UK organisations engaging contractors (including global businesses with a UK entity)
In short: If you're engaging or working as a contractor in the UK, IR35 is relevant.
Inside vs Outside, what's the difference?
It's not just about the determination
A common misconception is that once and IR35 determination is made, you're covered. That's not the case.
IR35 compliance also depends on:
How contracts are written
Actual working practices on site
Consistency between the two
Even with a determination in place (via tools like CEST or third-party providers), businesses and contractors can still be challenged by HMRC.
What are the risks of getting IR35 wrong?
For employers, clients, and agencies:
Backdated tax and National Insurance
Interest and financial penalties
Increased HMRC scrutiny across all contractor engagements
For contractors:
Unexpected tax liabilities
Disruption to income structure
Potential legal costs if challenged
Do contractors need IR35 insurance?
For contractors working outside IR35, insurance is highly recommended. It can help cover legal costs if HMRC challenges your status, potential tax liabilities and investigation support.
Just as important: Always keep a clear audit trail, including your Status Determination Statement (SDS) and supporting documentation.
IR35 support for you
IR35 affects employers and contractors differently, which is why we’ve created dedicated support for both.
Hiring contractors? Visit our IR35 employer advice page to understand your responsibilities as an employer, reduce risk and learn how we can support you.
IR35 is complex but managing it truly doesn't have to be. We provide a structured, transparent approach the supports both employers and contractors throughout the entire engagement cycle.
Clear IR35 determinations for every assignment
Documented audit trails to support every decision
Technology-driven assessments via our internal platform
Ongoing support if roles or working practices change
Access to trusted partners, including Kingsbridge for IR35 insurance
FAQs
Who is responsible for IR35 determinations?
In most cases, the End Client is responsible for determining IR35 statues. However, the fee payer may be liable if the determination is incorrect.
Can IR35 status change during a contract?
Yes. If the scope of work or working practices change, the IR35 status should be reassessed.
Can I work through an umbrella company for outside IR35 roles?
Yes, but you will still be taxed via PAYE which may reduce the tax efficiency typically associated with IR35 engagements.
Is IR35 only about tax?
No. While tax is the outcome, IR35 is really about the nature of a working relationship between contractor and employer.
