The off-payroll working rules in the private sector present many challenges for 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. The government introduced it in response to what it termed disguised employment. By working through a limited company, a worker could pay less tax than a traditional employee doing the same job. 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?
The underlying employment status test has not changed, but the way IR35 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?
Where Chapter 10 applies, the end-client decides and must issue a Status Determination Statement (SDS). This applies to public sector bodies and medium or large private sector clients.
If the engagement is inside IR35, the fee-payer normally deducts PAYE and NICs before paying your company.
Where the private sector client qualifies as small, Chapter 10 does not apply and your company remains responsible for determining IR35 status under Chapter 8. See the small company exemption.
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 why. 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.
The small company exemption does not apply to public sector bodies.
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.
The size of the agency does not determine whether Chapter 10 applies. It is the size and status of the client that matters.
Responsibility can remain higher up the chain where the Chapter 10 rules have not been followed correctly, for example where the client has failed to issue a valid SDS or the determination has not been passed down the contractual chain.
Who is the fee-payer?
The fee-payer is usually the organisation immediately above your limited company in the contractual chain which pays your company for the work.
This will often be a recruitment agency. If you contract directly with the client and the client pays your company, the client may also be the fee-payer.
Where an engagement is inside IR35, the fee-payer normally becomes the deemed employer for tax purposes and is responsible for operating PAYE.
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 by some advisers and commentators, particularly over its treatment of mutuality of obligation and aspects of employment status case law. It can also return an unable-to-determine result.
HMRC says it will stand by a CEST determination provided the information entered is accurate and the tool has been used in accordance with its guidance. If the contractual terms or working practices change materially, the assessment should be revisited.
You can read more in our guide to CEST. If you want an independent review, see our professional IR35 contract review service.
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 the relevant employment status factors, including 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.
During this period, the existing SDS continues to apply.
HMRC does not arbitrate SDS disputes.
What happens if I don’t receive an SDS?
Where Chapter 10 applies, the client must issue an SDS and give it to the worker and the party it contracts with in the supply chain.
If the client does not meet its obligations, responsibility for the relevant tax and NICs may remain with the client rather than passing down the chain in the normal way.
If you believe you should have received an SDS, ask the client for one in writing.
What does reasonable care mean?
The client must take reasonable care when making a status decision. This typically means carrying out an assessment that considers the contract and actual working practices rather than simply applying a predetermined result.
Other parties in the chain also have their own obligations, including passing the SDS on where required.
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 properly at the relevant contracts or working practices.
Depending on the facts, this may indicate that reasonable care has not been taken and may be challenged via the client-led disagreement 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. The payment made to your company is therefore net of the deductions which apply to the deemed employment payment.
Under Chapter 10, the 5 per cent administration allowance is not available.
Separate rules introduced from 6 April 2026 can also make recruitment agencies, or the end client where there is no agency, jointly and severally liable where an umbrella company fails to operate PAYE correctly. See our guide to umbrella company PAYE risk from April 2026.
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?
The expenses position is much more restricted than it is for a genuine outside-IR35 engagement.
In particular, ordinary travel between your home and the client workplace will not normally become tax deductible simply because you operate through a limited company. What you can claim depends on the nature of the expense and how the engagement is taxed.
Take advice before assuming that travel, subsistence or other expenses can be deducted from income which has already been taxed under Chapter 10.
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 cancelled it in October 2022. So the off-payroll rules remain very much 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 depends on the client’s UK connection.
If a medium or large private sector client is wholly overseas, with no UK residence and no UK permanent establishment, Chapter 10 does not apply. Your company must then consider whether Chapter 8 applies.
If an overseas client has a UK permanent establishment, Chapter 10 can apply, and the overseas client remains responsible for its obligations under the rules.
Cross-border situations can be complex, so take specialist advice where necessary.
How long should I keep records?
Keep contracts, SDS documents, disagreement correspondence, CEST results and evidence of working practices for at least six years as part of your company records.
Some HMRC assessment time limits can extend beyond this in particular circumstances, so do not dispose of relevant evidence purely because an engagement has ended.
Is there any point in keeping my limited company open?
Yes, if you still undertake, or expect to undertake, outside-IR35 work through your company.
If all of your work is now through an umbrella company, on the client’s payroll or taxed under Chapter 10, keeping the company open may simply create additional accounting and Companies House costs. Whether to keep it depends on your future contracting plans and what assets or funds remain in the company.
Is there any way around the rules?
There are no shortcuts. Avoid tax avoidance schemes. HMRC can pursue unpaid tax, interest and penalties.
There are legitimate situations where Chapter 10 does not apply, including work for a small private sector client and some genuinely contracted-out services.
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. If you work for a small company and are responsible for determining your own IR35 status, consider IR35 insurance for representation if you are selected for an HMRC enquiry.
Worried about an IR35 challenge?
HMRC investigations can be expensive and time-consuming. Qdos provides expert defence and financial cover if your status is challenged.