If you work through your own limited company and you have just had an IR35 question land in your lap, you are not alone and you are not behind. This guide explains what the rules actually mean, who decides your status, and what to do next without the jargon.

Why IR35 matters more than most contractors realise

IR35 is the UK’s off-payroll working legislation. HMRC’s own guidance states the rules exist to ensure contractors pay broadly the same Income Tax and National Insurance as an employee would, where the working relationship resembles employment. It became law in 2000 and has been significantly reformed since.

The core question IR35 asks is straightforward: if you were engaged directly by your client, without your limited company in between, would you look like an employee? If the answer is yes, you are inside IR35. ContractorUK estimates that being caught inside IR35 reduces a contractor’s take-home pay by 20 to 30 percent.

Where most contractors get this wrong

IR35 mistakes are rarely made out of dishonesty. They happen because the rules are genuinely complicated, and the consequences of getting it wrong only become visible months or years later. Two mistakes come up repeatedly in practice.

Assuming outside IR35 by default

Many contractors who have been outside IR35 for years assume nothing has changed. The reality is that your status is contract-specific and client-specific. A new contract, a change in working practices, or a client restructuring their workforce can all shift your position without anyone telling you directly.

Relying on HMRC’s CEST tool without reviewing the contract

HMRC’s Check Employment Status for Tax (CEST) tool is widely used but has been criticised for not covering every aspect of employment status and not always producing a determination. A CEST result alone is not a defence if HMRC later enquires. Your actual contract wording and day-to-day working practices both count.

What to do with IR35, step by step

The steps below reflect what a properly handled IR35 position looks like in practice. Skipping any of them leaves gaps that can be costly later.

1. Step 1: Identify who determines your status. For clients classified as medium or large businesses, the client holds responsibility for issuing a Status Determination Statement (SDS). For small clients, you as the contractor may still be responsible for your own assessment. Check which situation applies to each contract you hold.
2. Step 2: Review the contract against the key employment status factors. The main factors HMRC considers are: control (how much your client directs your work), substitution (whether you can send someone else), mutuality of obligation (whether the client must offer work and you must accept it), and whether you are genuinely in business on your own account. Your contract must reflect reality, not just what you want it to say.
3. Step 3: Match your accounting to your IR35 position. If you are outside IR35, your limited company accounts, corporation tax, and salary and dividend structure all stay as they are. If you are inside IR35, the fee-payer deducts Income Tax and National Insurance at source, and the way you draw money from your company changes. Make sure your accountant knows your position and adjusts your records accordingly.

These steps are not one-off tasks. IR35 status should be reviewed at every new contract and every contract renewal. A contract that was outside IR35 two years ago may not be now, particularly if your day-to-day working arrangements have changed.

Costs and what to realistically expect

The financial stakes around IR35 are real. A contractor earning £500 per day who is incorrectly placed outside IR35 can face back-tax, employer National Insurance contributions, and interest on underpaid amounts. Getting your accounting right from the start is far cheaper than correcting it under an HMRC enquiry.

How to get your IR35 position sorted today

You do not need to have everything figured out before speaking to an accountant. In fact, the earlier in a contract you get proper advice, the more options you have. Here are two practical steps you can take right now.

• Pull out your current contract and check whether your client has issued a Status Determination Statement. If they have, read it carefully and note whether it says inside or outside IR35. If they have not issued one and are not a small business, that is itself something to raise.
• Book a free call with me at Anchor Accounts and Books. Bring your contract, your current accounting setup, and any SDS you have received. I will tell you plainly what your position looks like and whether your accounts are set up correctly for it.