HMRC IR35 Status Checker UK 2026

IR35 (officially called "off-payroll working rules") is HMRC legislation that determines whether you're genuinely self-employed or a "disguised employee" for tax purposes. It applies to people who work through their own limited company (a Personal Service Company or PSC) but whose working arrangement resembles employment.

If you're caught inside IR35, you pay tax like an employee—income tax and National Insurance on all your income, less 5% expenses. This typically means 25-35% less take-home pay compared to operating outside IR35, where you can use the tax-efficient salary/dividend structure. Since April 2021, medium and large private sector clients (and all public sector since 2017) are responsible for determining your status and deducting tax at source if you're inside IR35.

It matters because getting it wrong can result in backdated tax bills of £20,000-£100,000+ depending on your income and how long you've been non-compliant, plus interest and penalties. Many contractors have been forced to close their businesses after losing IR35 disputes with HMRC.

This tool uses the same three core legal tests as HMRC's Check Employment Status for Tax (CEST) tool—control, substitution, and mutuality of obligation—plus additional factors like financial risk and part-and-parcel integration. Our logic is based on published HMRC guidance and IR35 case law precedents.

However, there are crucial differences: HMRC's CEST tool is the only tool whose determinations HMRC will stand by (assuming you answer honestly and provide all relevant information). If CEST says you're outside IR35, HMRC typically won't challenge that determination. Third-party tools like ours are for education and initial risk assessment only.

For a legally defensible determination—especially for high-value contracts or if you're in a dispute—you should: (1) Use HMRC's official CEST tool, (2) Keep the determination and all answers as evidence, (3) Consider getting professional IR35 insurance, and (4) Consult an IR35 specialist if the result is "unable to determine" or you have concerns. Think of our tool as a preliminary health check, and HMRC's CEST as the formal diagnosis.

The consequences of being caught inside IR35 when you've been treating your contract as outside can be severe:

• Backdated tax and NI: HMRC can go back up to 6 years (or 20 years for deliberate avoidance). If you earned £60,000/year as a contractor outside IR35 but should have been inside, you might owe £10,000-£15,000 per year in additional tax and NI. Over 4 years, that's £40,000-£60,000.
• Interest charges: Typically 2-4% per year on the unpaid tax, calculated from when it was originally due. This can add thousands more.
• Penalties: Range from 15% (lack of reasonable care) to 100% (deliberate and concealed) of the tax owed. For a £50,000 tax bill, penalties could be £7,500-£50,000 extra.
• Impact on client: Since April 2021, if your client (medium/large company) incorrectly determined you were outside IR35, they face the tax liability and penalties, not you. However, if you "knowingly received" payment you knew was incorrectly treated, HMRC may pursue you too.
• Business disruption: Many contractors have had to close their limited companies, declare bankruptcy, or return to permanent employment after facing large IR35 tax bills they couldn't pay.

The best protection is to assess your status correctly upfront, structure your contracts to genuinely reflect self-employment (where appropriate), and use HMRC's CEST tool for each new engagement. If you're comparing different working structures, our self-employed tax calculator shows tax implications of various contractor setups.

It depends on your client's size and your situation:

For small companies (under 50 employees AND turnover under £10.2m AND balance sheet under £5.1m), the off-payroll rules don't apply—you remain responsible for your own IR35 status. You operate outside IR35 and pay tax via your limited company, and HMRC will pursue you if they believe you're inside IR35.

For medium/large companies and all public sector, they must provide a Status Determination Statement (SDS) saying whether you're inside or outside IR35. If they say you're outside, the tax liability stays with them if HMRC later disagrees. You can generally rely on this unless you know it's obviously wrong—if you're clearly working like an employee (same desk for 3 years, can't send a substitute, managed like staff) but client says outside IR35 for commercial reasons, HMRC may argue you "knowingly received" incorrect tax treatment.

Best practice: Always review the client's determination and reasoning. If you disagree, you have the right to challenge it through their dispute process. Keep all SDS documents and evidence of your working practices. Many contractors now insist clients use HMRC's CEST tool and provide the full result, not just a "we think you're outside IR35" email. If you're negotiating contracts, understanding your real take-home pay using our contractor calculator helps you negotiate rates that work regardless of IR35 status.

The tax treatment is completely different, which creates a significant net pay difference:

Outside IR35 (self-employed):

• You invoice your client normally and receive full payment into your limited company
• Pay yourself a small director's salary (£9,100-£12,570) to minimize NI while getting pension credits
• Company pays 19% corporation tax on remaining profit
• Take profit as dividends, paying 8.75% (basic rate) or 33.75% (higher rate) dividend tax
• Effective total tax rate: 26-28% at basic rate, 46-49% at higher rate
• Example: £60,000 contract = approx. £45,000 net take-home

Inside IR35 (deemed employee):

• Client deducts income tax and NI before paying your company (or you operate a "deemed payment")
• You can claim 5% expenses allowance (£3,000 on £60,000) before tax
• Pay 20-45% income tax plus 8-13.8% employee/employer NI on remaining income
• No corporation tax or dividend tax (already taxed via PAYE)
• Effective total tax rate: 28-58% depending on income level
• Example: £60,000 contract = approx. £38,000 net take-home

The £60,000 contract example above means £7,000 less per year inside IR35. Over a 5-year contracting career, that's £35,000 less in your pocket. At £100,000 contracts, the difference is even more stark—around £12,000-£15,000 per year, or £60,000-£75,000 over 5 years.

This is why IR35 status is so critical and why many contractors either: (1) ensure their working arrangements genuinely qualify as outside IR35, (2) charge higher day rates for inside IR35 roles to compensate, or (3) avoid inside IR35 contracts entirely and only take outside IR35 work.