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IR35 compliance: What you’re expected to do

  • Writer: Dan Burnell
    Dan Burnell
  • 2 days ago
  • 2 min read

If your business hires contractors through intermediaries like personal service companies (PSCs), you may be responsible for checking whether IR35 rules apply. These rules are designed to ensure that individuals working like employees pay the correct tax and National Insurance (NI).


Who’s responsible?

Since April 2021, medium and large private sector businesses must assess the employment status of contractors. If your business is classed as “small” - based on turnover, balance sheet, and employee count - the responsibility remains with the contractor.


If your business grows and loses “small” status for two consecutive years, you’ll need to take on IR35 compliance from the start of the third year.


What you must do

If IR35 applies, you must:

  • Assess the contractor’s working arrangement.

  • Use HMRC’s Check Employment Status for Tax (CEST) tool if needed.

  • Issue a Status Determination Statement (SDS) to the contractor and any agency involved.

  • Allow the contractor to appeal the decision.


You must show that you’ve taken reasonable care in making the assessment. If you don’t, your business could be liable for tax and NI deductions.


Key factors to consider

When assessing status, look at:

  • Mutuality of obligation - is there an expectation of ongoing work?

  • Control - who decides how, when, and where the work is done?

  • Substitution - can the contractor send someone else?

  • Financial risk - does the contractor bear any?


If the contractor would be considered an employee without the PSC, IR35 likely applies.


Why it matters

Failing to comply with IR35 can lead to tax liabilities, penalties, and reputational damage. It’s important to assess each case properly and document your decisions.


At BlueFox Accounting, we help businesses stay compliant with IR35, from reviewing contracts to preparing SDS documents and managing payroll implications. Whether you’re scaling up or supporting your community through outsourced services, we’ll make sure your obligations are met with care and clarity.


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