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.
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.
How does an EOR compare to managing IR35 status?
For a new hire, an Employer of Record employs the worker directly and compliantly from the start, so there's no contractor engagement to classify, no Status Determination Statement to issue, and no risk of getting the call wrong. It trades the ongoing compliance judgement of IR35 for a straightforward employment relationship. That is a different situation from an existing contractor whose engagement may already be inside IR35: moving them onto an EOR now does not retroactively fix HMRC's view of the engagement before the switch.
Who handles this if you hire through Teamed?
This is the core case for an EOR on a new hire: when Teamed employs your UK team member directly from the start, the IR35 question doesn't arise at all, there's no contractor engagement to determine and no Status Determination Statement to issue. For an existing contractor relationship you're worried about, get the status properly assessed first; an EOR is the clean go-forward answer, not a fix for exposure that already exists.
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 | A client is exempt from the Chapter 10 determination duty if small under Companies Act 2006 ss.382-383: at least 2 of 3 of turnover not exceeding £15 million, balance sheet not exceeding £7.5 million, average employees not exceeding 50. Raised thresholds (from £10.2m/£5.1m) apply for financial years beginning on or after 6 April 2025. (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) |
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.
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.
