IR35 (off-payroll working) vs Employer of Record
Under IR35, a medium or large UK client must determine a contractor's tax status and the fee-payer runs PAYE if the engagement is inside IR35. A 2024 offset mechanism fixed a double-taxation problem, and small-company exemption thresholds rose in 2025. Hiring someone as an Employer of Record employee from the start avoids the question entirely; moving an existing at-risk contractor onto an EOR does not erase exposure HMRC can still investigate from before the switch.
Government asks who should count as a worker
What happened
On 14 October 2026 the government asked for views on new rules about who counts as a worker. One idea is that in some claims a person would count as a worker unless the business can prove they do not. People can send their views until 8 January 2027.
What it means for you
This is only a plan for now. It is not a law yet. It is about work rights, like holiday pay and the lowest legal wage. It does not change tax, so the IR35 tax rules are not part of it. If you use contractors who work like staff, check how you treat them.
Dates to know
- 8 January 2027Last day to send views to the government
Source: GOV.UK / Department for Business and Trade. We check this page every week. Last checked .
IR35, formally the off-payroll working rules in Chapter 10 of ITEPA 2003, requires medium and large private-sector clients to determine whether a contractor's engagement is really employment in substance, and to issue a Status Determination Statement. If the engagement is inside IR35, the fee-payer in the supply chain must operate PAYE, deducting income tax and employee National Insurance, and paying employer National Insurance and the Apprenticeship Levy where applicable. Since 6 April 2024, an HMRC offset mechanism lets tax already paid by the worker or their intermediary be set against the deemed employer's PAYE bill when a status determination is corrected to inside IR35, fixing a previous double-taxation problem. A client is exempt from having to make the determination at all if it qualifies as small under Companies Act 2006 thresholds, which were raised for financial years beginning on or after 6 April 2025. Hiring a worker as an Employer of Record employee from day one avoids the IR35 question altogether, since there is no contractor status to determine. That is different from moving an existing contractor onto an EOR to fix a suspected IR35 problem: HMRC's enquiry window reaches back 6 tax years, and switching a role that already looked like employment can itself be read as evidence the arrangement was employment all along, so it does not cure exposure from before the switch.
Who decides if someone is inside or outside IR35?
The client does, for medium and large private-sector engagements, via a Status Determination Statement. If the client is small under Companies Act 2006 thresholds, the duty falls back to the worker's own intermediary instead.
What happens if a determination is wrong?
Since April 2024, an HMRC offset mechanism prevents the same income being taxed twice when a determination is corrected retrospectively to inside IR35, letting tax the worker or their company already paid be set against the deemed employer's liability.
IR35 falls away for UK hires
- Direct employment, no status determination
- No Status Determination Statement to defend
- PAYE and National Insurance operated
Key figures
| Detail | Value |
|---|---|
| Client determines status, fee-payer accounts for tax | For medium/large private-sector clients, the client determines a contractor's employment status for tax purposes and issues a Status Determination Statement (SDS). If inside IR35, the fee-payer deducts Income Tax and employee NICs, and pays employer NICs and Apprenticeship Levy. (source) |
| IR35 offset mechanism, current since 6 April 2024 | SI 2024/355 lets HMRC offset Income Tax, employee NICs, Corporation Tax and dividend tax already paid by the worker/intermediary against the deemed employer's PAYE liability when a status determination is corrected to inside IR35, fixing the prior double-taxation problem. Does not include Employer NICs. (source) |
| Small company exemption thresholds | SI 2024/1303 raised the Companies Act 2006 size thresholds for financial years beginning on or after 6 April 2025: small company turnover £10.2m to £15m and balance sheet total £5.1m to £7.5m; medium turnover £36m to £54m and balance sheet £18m to £27m. The employee-number limits are unchanged (50 for small, 250 for medium). A client that qualifies as small does not have to make an IR35 status determination. (source) |
| Chapter 8 fallback for small clients | Where a client is small, the off-payroll rules do not apply; the original Chapter 8 IR35 rules apply, and the worker's own intermediary remains responsible for assessing status and accounting for any tax due. (source) |
| Employment status consultation (employment rights, not tax) | The Department for Business and Trade opened a consultation on 14 October 2026, closing 8 January 2027, on reforming employment status for employment rights: placing less emphasis on personal service when deciding worker status, a presumption of worker status in certain tribunal claims, and new protections for the genuinely self-employed. It states that it concerns the framework for employment rights, not the separate framework for tax. These are proposals only. (source) |
Frequently asked questions
Does IR35 apply to all UK companies?
Only medium and large private-sector clients have to make the determination. Small clients, under Companies Act 2006 thresholds, don't, and the older Chapter 8 rules put the responsibility back on the worker's own intermediary.
Can we still work with contractors in the UK?
Yes, but if you're not small under the Companies Act thresholds, you need a compliant IR35 assessment process for each engagement. Many companies use an EOR for roles that function like employment to remove that ongoing judgement call entirely.
Does moving an existing contractor onto an EOR fix past IR35 risk?
No. It stops the IR35 question arising for that role going forward, but it does not erase exposure from before the switch. HMRC's enquiry window for IR35 reaches back 6 tax years, and moving a role that already looked like employment onto an EOR can itself read as evidence the arrangement was employment all along. If you're unsure about an existing engagement, get it properly assessed before changing how it's structured.
What's the small company exemption threshold?
A client is exempt if it meets at least two of: turnover not exceeding £15 million, balance sheet total not exceeding £7.5 million, and average employees not exceeding 50, for financial years beginning on or after 6 April 2025.
Does the October 2026 employment status consultation change IR35?
No. The consultation, opened on 14 October 2026, is about employment status for employment rights such as the minimum wage and holiday pay. The government says it does not cover the separate status framework for tax, which is where IR35 sits. It proposes making worker status easier to establish, including a presumption of worker status in some tribunal claims. It is a proposal only and closes on 8 January 2027.
UK employment law is moving fast, and commencement dates have slipped before. When Teamed is your legal employer, we track every change and update your contracts, policies and payroll as the law lands, so you never have to read a roadmap to stay compliant.
