The off-payroll working rules in the private sector present a host of challenges to contractors, agencies and end-clients. Here we answer the most common questions about how Chapter 10 works in practice. The rules have applied in the public sector since April 2017 and in the private sector since April 2021.
What is IR35?
The Intermediaries Legislation became law in 2000. It was introduced in response to the growth of what the government termed disguised employment. By working via a limited company, a worker could pay less tax than a traditional employee performing the same role. The rules apply to contracts that are performed in the manner of an employee rather than a self-employed person working in business on their own account. IR35 is contained in Chapter 8, Part 2 of ITEPA 2003.
Off-payroll working: how has IR35 changed?
IR35 itself has not changed. The way it is administered has. For engagements with medium or large private sector clients, the end-client is responsible for assessing employment status, and the fee-payer must operate PAYE if the role is inside IR35. These additions are contained in Chapter 10 of ITEPA 2003. Read the official overview on GOV.UK.
Who decides my status under the off-payroll rules?
The end-client decides and must issue a Status Determination Statement (SDS). If the engagement is inside IR35, the client or fee-payer deducts PAYE and NICs before paying your company.
What is an SDS and what must it include?
An SDS is a written statement that says whether the role is inside or outside IR35 and the reasons for that decision. It must be given to you and to the next party in the chain. The client must take reasonable care when making the decision.
Are all clients affected by the off-payroll rules?
No. If the end-client is a small company under the Companies Act test, Chapter 10 does not apply and you remain responsible for status under Chapter 8. See the small company exemption.
Are recruitment agencies affected?
Yes. Agencies that pay contractors are often the fee-payer and carry the PAYE obligation when an engagement is inside IR35, provided all parties have met their legal obligations in the chain.
How does an end-client make a status decision?
Before the contract starts, the client must decide status using reasonable care. They may use HMRC’s CEST tool, an independent specialist such as Qdos, or other methods. You should receive an SDS setting out the decision and reasons. If inside IR35, the fee-payer must deduct income tax and NICs from your earnings.
What is CEST?
CEST stands for Check Employment Status for Tax. It is HMRC’s online tool. It has been criticised for ignoring elements of case law and for producing undetermined outcomes. For a more reliable assessment, order a professional IR35 contract review and ensure your working practices are reviewed regularly. You can read more in our guide to CEST.
What if I disagree with an SDS?
If you disagree with a determination, use the client-led disagreement process. Write to the client with evidence covering control, substitution and mutuality of obligation. The client has 45 days to respond. They must either change the determination and issue a new SDS, or confirm the original decision with reasons. HMRC does not arbitrate SDS disputes.
What does reasonable care mean?
All parties must take reasonable care when making status decisions. This typically means a role-by-role assessment that considers the contract and actual working practices. Blanket role assessments that ignore the facts are unlikely to demonstrate reasonable care. See our overview of reasonable care.
What is a blanket determination?
A blanket determination is where a client labels whole groups of roles inside IR35 without looking at individual contracts or working practices. This approach risks non-compliance and may be challengeable via the client-led process.
How will I be paid if my role is inside IR35?
Some clients will only engage on payroll or via an umbrella company. If you continue through your limited company, the fee-payer is responsible for deducting income tax and employees’ NICs, and for accounting for employers’ NICs and the Apprenticeship Levy. Under Chapter 10, the 5 per cent administration allowance is not available.
If I am taxed like an employee, do I get employment rights?
No. IR35 is a tax regime only. If your engagement is inside IR35, you are taxed like an employee, but you do not gain statutory employment rights from that alone.
What expenses can I claim if I am inside IR35 under Chapter 10?
Scope for claiming travel and subsistence is limited when you are taxed under PAYE by the fee-payer. Check how the engagement is paid and take advice before assuming expenses are deductible. Our compliance guide explains how working practices and genuine business indicators help support outside status.
What is the IR35 offset?
The IR35 offset helps prevent double taxation where taxes have already been paid on income that is later treated as employment income. It allows set-off of certain taxes already paid when calculating liabilities under Chapter 10. See our explainer: what is the IR35 offset.
Was there a repeal of the off-payroll rules?
In September 2022, the government announced the repeal of Chapter 10, effective from April 2023, but this was cancelled in October 2022. The off-payroll rules remain in force. See the overview in our main IR35 guide.
Does any of this apply to sole traders?
IR35 only applies where there is an intermediary, typically a limited company. Sole traders are outside IR35, but separate employment status rules apply via the agency legislation and supervision, direction or control tests. Read more in Sole traders and IR35.
What if I have several contracts with different clients?
IR35 applies to each engagement, not to you personally. One contract can be outside while another is inside, depending on the terms and working practices.
Does off-payroll working apply if the client is overseas?
It can apply where the client has a UK connection or the work is performed for a UK organisation. If Chapter 10 does not apply, Chapter 8 may still apply to you. Cross-border situations can be complex, so take specialist advice.
How long should I keep records?
Keep contracts, SDS documents, disagreement correspondence and evidence of working practices for the relevant years in case of an enquiry. Good record-keeping supports your position and speeds up any review.
Is there any point in keeping my limited company open?
Yes. Many contractors continue to work outside IR35 via a personal service company. When the engagement is genuinely outside, operating through a company remains a popular and effective way to contract.
Is there any way around the rules?
No. Avoid tax avoidance schemes. HMRC can pursue unpaid tax, interest and penalties. Stick to compliant arrangements and get specialist advice where needed.
Where can I read the official guidance?
See Understanding off-payroll working (IR35) on GOV.UK. Also see our contractor’s guide to IR35 and off-payroll and SDS guide.
What steps should contractors take?
Book a contract and working practices review, keep evidence of substitution and deliverables, and use our inside IR35 calculator to understand the financial impact. Consider IR35 insurance for representation in the event of an enquiry.