IR35 is often discussed as though a contractor is either “inside” or “outside” forever. That is the wrong mental model. Off-payroll status is tested contract by contract, and responsibility for making the determination changes depending on the client. A freelancer can therefore have one engagement that falls inside the rules and another that does not.

IR35 is about the working relationship, not the label on the invoice

The off-payroll working rules apply where an individual provides services through an intermediary—commonly a personal service company—and the individual would have been an employee for tax purposes if engaged directly. The existence of a limited company, a consultancy agreement or a “self-employed” clause does not settle the analysis by itself.

HMRC looks at the reality of the engagement. Factors can include control, personal service and substitution, mutuality of obligation, financial risk, integration into the client’s organisation and the wider contractual picture. The written contract matters, but so does what happens in practice.

Who decides the status?

For many public-sector and medium or large private-sector engagements, the client is responsible for determining whether the off-payroll rules apply and should issue a Status Determination Statement with reasons. If the worker provides services to a small private-sector client, responsibility generally remains with the worker’s intermediary.

Five signals that deserve closer review

Why contract drafting alone is not enough

A carefully worded agreement cannot rescue an engagement whose day-to-day reality contradicts it. Equally, a badly drafted contract can create unnecessary uncertainty even where the commercial relationship is genuinely independent. Good IR35 risk management aligns the written terms, working practices, evidence and invoicing structure.

Contractors should retain the commercial evidence that supports independence: proposals, statements of work, deliverables, evidence of multiple clients where relevant, insurance, subcontracting or substitution arrangements, project correspondence and records of how scope changes are agreed.

What happens if an engagement is inside the rules?

Where the off-payroll rules apply, the deemed-employer mechanism can result in Income Tax and employee National Insurance being deducted from the relevant payment, with employer obligations falling on the deemed employer. The consequences depend on who is responsible under the rules and how the engagement chain is structured.

That can also affect the contractor’s cash planning. Gross invoice value is not necessarily the same as cash retained by the company, and the company’s own accounting still needs to correctly reflect receipts, expenses and any taxes already withheld in the chain.

Freelancers working directly as sole traders face a related but different question

IR35 technically concerns services provided through an intermediary, but employment-status risk is broader than IR35. A sole trader can still be treated as employed for tax purposes depending on the relationship. Businesses hiring freelancers therefore need to distinguish off-payroll rules from the more general question of employment status.

Build a contract-by-contract evidence file

For contractors, the strongest practical process is to review each material engagement before or at the start of the contract, record who is responsible for the determination, retain the SDS where one is issued, and preserve the evidence that supports actual working practices. Revisit the analysis if the project changes materially.

Britvex’s Contractor & CIS Accountants page covers the wider accounting context for contractors. Where the issue affects tax structure or commercial decisions, the relevant routes are Tax Services and Business Advisory.