Employment, Self-Employment, and IR35 Guidance
When engaging a company to provide services to your business, it is important to consider whether that company is to be used as a personal service company (or other intermediary company) by any individual worker(s), and, if so, whether the IR35 rules do or might apply to the proposed engagement of that company by a client or main contractor.
These Guidance Notes and Checklists provide a useful guide through the common misconceptions surrounding IR35 and should help to clarify what IR35 is and what impact it might have on the client, individual and the company.
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Frequently Asked Questions
How do I tell whether someone I engage is genuinely self-employed or really an employee?
Look at how the work is really done, not the job title. The main pointers to self employment are that the individual can send a substitute instead of doing the work personally, that they control how, when and where they work, that neither side is obliged to offer or accept ongoing work and that they take financial risk, use their own equipment and can profit from working efficiently. The more the picture resembles an employee, the higher the risk. These guidance notes and checklists take you through the same factors.
What is the difference between an employee, a worker and a self-employed contractor?
Employment law recognises three categories, but tax recognises only two. An employee has the full set of rights, including protection from unfair dismissal and redundancy pay. A worker is a middle category who still gets core rights such as paid holiday, the national minimum wage and rest breaks, but not the full employee set. A self employed contractor running their own business has none of these statutory rights and relies on the contract. For tax, HMRC treats a person as either employed or self employed, with no worker category.
Can I fix someone's status just by putting self-employed in the contract?
No. You cannot contract out of employment status. If the day to day reality is that the person works like an employee, HMRC or a tribunal can look behind the wording and find employment or worker status despite a self employed label. Courts disregard terms that do not reflect what actually happens, such as a substitution clause that could never realistically be used. The contract matters, but only alongside how the arrangement works in practice.
What is IR35, and do these notes explain it?
IR35, now usually called the off-payroll working rules, deals with people who provide their services through their own company, typically a personal service company, when they would look like an employee if engaged directly. It does not apply to a genuine sole trader engaged in their own name. Who is responsible for the tax position depends on the size of the client. These notes introduce IR35 so you can spot when it is in play, and the company contract templates sit in this same group.
Is there a free HMRC tool to check whether someone is employed or self-employed?
Yes. HMRC provides a free online tool called Check Employment Status for Tax, or CEST, which gives HMRC's view on whether an engagement is employed or self employed for tax and for the off-payroll rules. HMRC says it will stand by the result where your answers are accurate and match the real working arrangement. It is a useful check, but it reflects only the facts you enter, so it does not replace an honest look at how the work is actually done.
If I engage a contractor's company, who decides whether the off-payroll rules apply?
It turns on your size as the client. Medium and large private sector clients must decide the status and issue a status determination statement with reasons. Small clients are exempt, and the contractor's own company makes the decision and handles any tax. A client is small unless, broadly, it exceeds at least two of these limits: turnover of £15 million, balance sheet total of £7.5 million and 50 employees, using the thresholds that apply from 6 April 2025.