IR35 for hirers: who decides, who pays, what to check

When do the off-payroll rules apply to you?

The off-payroll working rules have applied to public sector clients since 6 April 2017, and to medium and large private and voluntary sector clients since 6 April 2021. They apply contract by contract, to workers who provide their services through their own intermediary, usually a limited company. GOV.UK, understanding off-payroll working

A client that is wholly overseas, meaning it is not UK resident and has no permanent establishment in the UK, does not apply the rules. HMRC says a UK intermediary providing services to that client is not a permanent establishment of the client. HMRC ESM10006

Is your company small? The 2026 position

A private sector company is medium or large if it meets two or more of these conditions. From financial years beginning on or after 6 April 2025, the thresholds are: HMRC ESM10006a

HMRC ESM10006a; HMRC ESM10006

Why the new thresholds may not help you in 2026/27. For each tax year, the test looks at the last financial year for which the deadline for filing accounts ended before the tax year began, and a change of size needs the conditions to be met for two consecutive financial years. In HMRC's own worked example, the company only moves outside the rules in the 2027/28 tax year. So a company that is small under the new thresholds can still be in scope in 2026/27. HMRC ESM10006a

Groups, connected persons and joint ventures have their own size rules, set out in HMRC's manual at ESM10007 to ESM10009. HMRC ESM10000

If the contractor, or the party you contract with, asks you to confirm your size, you have 45 days to reply. If you do not, they can apply to the courts for an order requiring you to answer. HMRC ESM10011A

Who decides status, and what goes in the status determination statement

If you are in scope, you decide the contractor's status, and you should produce a status determination statement (SDS) including the reasons for your determination. GOV.UK, understanding off-payroll working

• The SDS must state your conclusion and your reasons, and you must give it to the worker and to the party you contract with, for example the agency. HMRC does not require a set format. HMRC ESM10012
• If you do not give a valid SDS, you are responsible for deducting and paying the tax and National Insurance, and any Apprenticeship Levy. HMRC ESM10012
• You must take reasonable care, meaning you act as a prudent and reasonable person in your position would. HMRC gives a blanket determination, treating every contractor as caught without looking at the facts of each engagement, as an example of failing to take reasonable care. HMRC ESM10014
• If you fail to take reasonable care, responsibility for the tax, National Insurance and Apprenticeship Levy rests with you. HMRC ESM10014

Using HMRC's CEST tool

The Check Employment Status for Tax (CEST) tool gives HMRC's view of a worker's status based on the answers you give. HMRC "will stand by all results given by the tool, as long as the information you give remains accurate and is in accordance with our guidance". GOV.UK, CEST

HMRC treats accurately completing CEST and applying its result as part of reasonable care. Entering inaccurate information is a failure to take reasonable care. HMRC ESM10014

Who pays: the deemed employer and the liability chain

Where the rules apply, the deemed employer deducts Income Tax and employee National Insurance from the fees paid to the worker's company, and pays employer National Insurance and, where applicable, the Apprenticeship Levy. GOV.UK, understanding off-payroll working

• Who the deemed employer is. It is the lowest party in the chain above the worker's company that is a "qualifying person": broadly, it has received the SDS, is UK resident or has a place of business in the UK, and is not controlled by the worker. If there is no such party below you, you, the client, are the deemed employer. HMRC ESM10017
• Employer National Insurance is on top. Secondary (employer) National Insurance is additional to the deemed direct payment, and HMRC says Class 1 National Insurance for deemed employees cannot be claimed against the Employment Allowance. HMRC ESM10019
• If the deemed employer does not pay. Where HMRC has no realistic prospect of recovering from the deemed employer, it can recover from the first agency in the chain, and then from the client. HMRC says it will not do this where the failure is the result of a genuine business failure. HMRC ESM10031
• Set-off. Since 6 April 2024, where HMRC pursues a deemed employer, the liability can be reduced by tax and National Insurance already paid on the same income by the worker or their company. HMRC ESM10037

In 2026/27, employer National Insurance is 15% above a secondary threshold of £5,000 a year, and the Apprenticeship Levy is 0.5% of the pay bill with a £15,000 allowance. GOV.UK rates and thresholds 2026 to 2027

When a contractor disagrees

The worker, or the deemed employer, can tell you they disagree with your determination. An agency that is not the deemed employer cannot use this process. You must respond within 45 calendar days of receiving their representations, saying whether your SDS stands, and if it does not, give a new SDS with reasons. If you do not follow the process, responsibility for the tax, National Insurance and Apprenticeship Levy moves to you for further payments. HMRC ESM10015

What changes next

• We found no announced IR35 reform for 2026/27. Budget 2026 is on 28 October 2026 and we will update this guide after it. HM Treasury, Budget date
• The earliest tax year in HMRC's worked example in which a company leaves the rules under the new thresholds is 2027/28, starting 6 April 2027. HMRC ESM10006a
• If your contractors are paid through an umbrella company rather than their own limited company, a different set of PAYE rules has applied since 6 April 2026. See our umbrella company rules 2026 guide.

Practical checklist for hirers

This is our checklist as recruiters, built from the HMRC duties above. It is not a substitute for advice from your accountant or tax adviser.

1. Work out your size from your filed accounts, over two consecutive financial years, and note the first tax year you could fall outside the rules. HMRC ESM10006a
2. If you are part of a group, check the group rules at ESM10007 before relying on your own figures. HMRC ESM10000
3. Decide status role by role, on the facts of each engagement, never as a blanket policy. HMRC ESM10014
4. If you use CEST, answer accurately and keep a copy of the answers and the result. GOV.UK, CEST
5. Issue the SDS, with your reasons, to the contractor and to the agency or party you contract with. HMRC ESM10012
6. Set up a way to receive disagreements and reply within 45 days. HMRC ESM10015
7. Reply to any request to confirm your size within 45 days. HMRC ESM10011A
8. Know who the deemed employer is in your chain, and that it is UK based. HMRC ESM10017
9. Budget for employer National Insurance and the Apprenticeship Levy on inside IR35 engagements. GOV.UK rates and thresholds 2026 to 2027
10. Ask your accountant or tax adviser to confirm your approach.

How we work with you on IR35

When we supply a contractor through our UK contract desk, we will tell you where a role appears to sit, including the year your company would actually count as small under the new thresholds, and your accountant confirms it. Contractors can read how we work with them on our contractors page.

Sources

Every source below was fetched and read on 29 September 2026. We use primary sources first, and name any commentary. How we research these pages.

1. GOV.UK: Understanding off-payroll working (IR35)When the off-payroll rules apply, who decides status, the SDS, what the deemed employer deducts and pays. Checked 29 September 2026.
2. HMRC ESM10006: meaning of medium or large sized, and wholly overseas clientsThe two of three size test, the previous £10.2 million and £5.1 million thresholds, and the wholly overseas client exclusion. Checked 29 September 2026.
3. HMRC Employment Status Manual ESM10006a: size threshold changes from 6 April 2025The £15 million and £7.5 million thresholds, the two consecutive years test and the 2027/28 worked example. Checked 29 September 2026.
4. HMRC ESM10000: off-payroll working manual contentsThat groups, connected persons and joint ventures have their own size rules (ESM10007 to ESM10009). Checked 29 September 2026.
5. HMRC ESM10011A: duty for client to confirm its size upon requestThe 45 day duty to confirm size when the worker or the party you contract with asks. Checked 29 September 2026.
6. HMRC ESM10012: status determination statement (SDS)Who must receive the SDS, that it contains the conclusion and reasons, and what happens without a valid SDS. Checked 29 September 2026.
7. HMRC ESM10014: reasonable careThe reasonable care standard, blanket determinations, CEST accuracy, and liability staying with the client. Checked 29 September 2026.
8. GOV.UK: Check employment status for tax (CEST)What CEST is and HMRC standing by its results where the information is accurate. Checked 29 September 2026.
9. HMRC ESM10017: off-payroll working and the contractual chainHow the deemed employer is identified, what a qualifying person is, and the client as default deemed employer. Checked 29 September 2026.
10. HMRC ESM10019: operating PAYEThat secondary NICs are additional to the deemed direct payment and cannot be set against the Employment Allowance. Checked 29 September 2026.
11. HMRC ESM10031: recovery from other personsWhen HMRC can recover an unpaid off-payroll liability from the first agency and then the client. Checked 29 September 2026.
12. HMRC ESM10037: set-off legislation, commencementSet-off of tax already paid by the worker or intermediary, for trigger events from 6 April 2024. Checked 29 September 2026.
13. GOV.UK: Rates and thresholds for employers 2026 to 2027Employer and employee National Insurance rates and thresholds, Employment Allowance, Apprenticeship Levy. Checked 29 September 2026.
14. HMRC ESM10015: client-led status disagreement processWho can disagree, the 45 day response time, and liability moving to the client if it fails to respond. Checked 29 September 2026.
15. HM Treasury: Chancellor letter to the Treasury Select Committee on the Budget 2026 dateBudget 2026 on 28 October 2026. Checked 29 September 2026.