IR35 for IT contractors: a recruiter’s checklist

You have a developer ready to start on Monday, a client who wants her through her own limited company, and a day rate agreed on the phone. Before the contract goes out, IR35 for IT contractors decides who works out her tax status, who deducts the tax and who pays if it goes wrong. For an agency, the answer to the last question is often you. This is what a recruiter placing IT contractors should check on every limited company booking, using HMRC’s off payroll working guidance as it stands in September 2026.

Who decides the status

Since April 2021, where the client is a medium or large private business, or any public body, the client decides whether the contractor would be an employee if she were engaged directly. HMRC calls the written result a status determination statement. The client must give it, with reasons, to the contractor and to the party it contracts with, which is usually the agency.

HMRC’s guidance for clients treats a company as medium or large if it meets two of three tests: turnover above £10.2 million, a balance sheet total above £5.1 million, more than 50 employees. If the client is small, the decision sits with the contractor’s own company and the agency has no deduction to make. Ask every new client which side of the line it is on and get the answer in writing.

If the statement never arrives

Until the client passes the statement down the chain, the client carries the tax. Once it reaches you, and you are the one paying the contractor’s company, the liability is yours. So the statement is the first document on the file, before the contract and before the start date.

Read it when it comes. A one line email saying “inside” with no reasons is not a statement, and HMRC expects the client to have taken reasonable care. One ruling applied to every contractor in a department does not meet that test. Many clients use HMRC’s Check Employment Status for Tax tool, updated on 30 April 2025. HMRC says it will stand by the result as long as the information given remains accurate, so ask for the saved output and keep it.

What an inside ruling costs the agency

If the role is inside IR35 and you pay the limited company, you are the fee payer. You deduct income tax and employee National Insurance from the fee, net of VAT, and report it through payroll in real time. You also pay employer National Insurance, at 15 per cent since April 2025, and the Apprenticeship Levy if it applies to you. HMRC’s guidance for fee payers says these cannot be deducted from the payment to the contractor’s company.

This is where margins disappear. A day rate quoted to the client on an outside basis will not carry employer National Insurance on top. Price the booking after the status is known, not before, and give the contractor the inside figure before she turns down other work.

The contractor can disagree

A contractor who thinks the ruling is wrong can challenge it, and so can you as fee payer. The client has 45 days to reply, either with its reasons for keeping the decision or with a new one. If it does not reply in that time, the tax liability moves to the client. Keep a note of the date the challenge was sent.

The umbrella route has changed

When a role is ruled inside, the usual answer has been to move the contractor to an umbrella company. Since 6 April 2026 that carries its own risk. Under the umbrella company rules that took effect on that date, the agency supplying the worker to the client is jointly and severally liable for PAYE and National Insurance the umbrella fails to pay. Where there is no agency in the chain, the liability passes to the client. Checking the umbrella beforehand is sensible, but it does not remove the liability.

Contractors working through their own limited company stay under the off payroll rules and are outside the umbrella change. The practical point is that a contractor can no longer name any umbrella she likes. Keep a short list of umbrellas whose payroll you have seen evidence of, and ask for the first month’s payslips.

Small company thresholds are moving

The Companies Act size thresholds rose for financial years starting on or after 6 April 2025, to turnover above £15 million and a balance sheet total above £7.5 million. The 50 employee test is unchanged. HMRC’s Employment Status Manual says that for a usual twelve month financial year the earliest tax year this affects a client is 2027 to 2028.

So some clients who issue statements today will count as small from April 2027, and the decision will go back to the contractor’s company. Nothing changes this tax year. It is worth noting now which of your clients sit between the old figures and the new ones.

IR35 for IT contractors: five checks before the start date

1. The client’s size, confirmed in writing.
2. The status determination statement on file, with reasons, dated before the start.
3. The rate agreed after the status is known, with employer National Insurance costed if the role is inside.
4. If the role is inside and paid through you, payroll set up with the off payroll worker marker.
5. If an umbrella is used, evidence of its PAYE payments and the contractor’s first payslips.

One more piece of paper belongs on the file. Under the Conduct of Employment Agencies and Employment Businesses Regulations 2003, a limited company contractor can opt out of the regulations, but only if the notice comes from both the company and the individual and reaches the agency before she is introduced or supplied to the client. An opt out signed after the start date has no effect.

Flamingo Workforce places IT and technical contractors and permanent staff with employers across the UK, with status, right to work and references checked before the first day. If you have a role to fill, get in touch with the dates and the rate.