IR35 is Back in the Spotlight! What it Means for Contractors and Employers

IR35 is back in the spotlight, and if you’re a contractor or a business engaging off-payroll workers, now is the time to pay close attention. With heightened HMRC enforcement, evolving IR35 legislation, and high-profile tribunal cases, both individuals and companies across sectors like construction, healthcare, defence, and technology must ensure full IR35 compliance to avoid costly penalties. In healthcare, for example, locum doctors have faced increased scrutiny over long-term engagements. Contractors in the IT sector have also reported that being classed as inside IR35 has had a significant financial impact. So, what’s changed, and what do you need to do now?

What Is IR35?

IR35 (or the off-payroll working rules) is a tax legislation designed to identify individuals who are essentially working as employees but operating through their own personal service companies (PSCs) to gain tax advantages. The rules determine whether someone is truly self-employed or should be classed  as “employed for tax purposes”. If a contract is deemed “inside IR35,” the contractor must pay Income Tax and National Insurance contributions like a regular employee. On the other hand, “outside IR35” means the contractor is deemed to be self-employed and is responsible for managing their own taxes. For inside IR35 contracts an umbrella company may be beneficial as they handle all tax, compliance and national insurance on behalf of the contractor.

Why is IR35 Legislation Back in the Spotlight?

While IR35 has been around for over two decades, recent years have seen some major changes:

• In 2021, the rules were reformed in the private sector: medium and large companies became responsible for determining IR35 status
• In 2024 and 2025, HMRC has ramped up compliance checks targeting businesses and contractors alike
• New tribunal rulings have shown failing to assess IR35 status correctly can lead to significant tax bills and penalties

As a result, both contractors and organisations must take proactive steps to understand and comply with IR35 legislation.

How To Check IR35 Status

Determining a contractor’s IR35 status is crucial for ensuring compliance and avoiding unexpected tax liabilities. Here’s a step-by-step guide to checking IR35 status:

1. Use HMRC’s CEST Tool

The government’s Check Employment Status for Tax (CEST) tool is a widely used starting point. It guides you through a series of questions about the working relationship, such as control, substitution, and mutual obligations. While it’s helpful, keep in mind that the tool has limitations and doesn’t always account for the nuances of every contract. Check out Danbro Umbrella’s Guide on how to use the CEST Tool.

2. Review the Contract and Working Practices

The written contract must reflect the actual working relationship. Focus on:

• Substitution
• Control
• Mutuality of Obligation

If the contract allows genuine independence and aligns with day-to-day practices, it may fall outside IR35.

3. Seek Professional Review

Specialist legal or tax advisors can provide an independent IR35 assessment, often identifying risks that automated tools might miss.

4. Stay Updated

IR35 rules evolve, regularly reviewing working practices and contracts ensures continued compliance.  

IR35 Status for Contractors

If you’re a limited company contractor or freelancer, you must:

• Understand your IR35 status for each contract

• Keep documentation that proves your independence
• Be aware of the risks of working with clients who haven’t assessed your status properly

At Danbro Accounting, we help contractors navigate IR35 with confidence—through expert advice, ongoing support, and accountancy services tailored to limited company directors and start-ups.

IR35 Compliance for Employers

IR35 compliance for employers is crucial if your organisation hires contractors, especially via PSCs, you may now be responsible for:

• Assessing IR35 status using reasonable care
• Providing a Status Determination Statement (SDS) for each engagement
• Ensuring that tax and NICs are paid correctly for inside IR35 contracts

These responsibilities only apply to medium and large companies in the private sector. Small private businesses are exempt, as contractors remain liable in those cases Neglecting these duties not only risks penalties but could damage your reputation and contractor relationships.

How Danbro Accounting Can Help

Whether you’re a contractor or a hiring organisation, Danbro Accounting is here to support you through every step of IR35 compliance. Our services include:

• Payroll solutions for outside IR35 roles
• Specialist accountancy services for PSCs and freelancers
• Expert advice tailored to your industry and working arrangements

With HMRC’s spotlight firmly back on IR35, it’s critical to ensure you’re fully compliant and protected. Let Danbro Accounting help you stay one step ahead.