Off-Payroll Working (IR35) in the Private Sector 2026/27
Since the off-payroll working rules extended to medium and large private sector businesses, the responsibility for deciding a contractor’s IR35 status moved from the contractor to the end client in most cases. This guide explains how the private sector rules work in 2026/27.
Who Decides Employment Status
For engagements with medium and large private sector clients, the end client is generally responsible for deciding whether an engagement falls "inside" or "outside" IR35 — meaning whether, if the contractor worked directly rather than through their own limited company, the relationship would look like employment — and must communicate that decision and its reasoning to the contractor and the agency in the chain.
This shifted responsibility (and risk) away from the contractor’s own company, which previously self-assessed its own status, onto the end client and the fee-payer (often the agency), who can be liable for unpaid tax if the status decision or subsequent tax treatment is wrong.
The Small Company Exemption
Where the end client qualifies as a "small" company under the relevant company size tests, the off-payroll rules do not apply in the same way, and responsibility for the IR35 status decision remains with the contractor’s own limited company, similar to the position that applied broadly across the private sector before the reform.
Contractors working for smaller clients should still assess their own status carefully, since the underlying employment status test is unchanged — only the question of who is responsible for the assessment, and who bears the tax risk, differs based on client size.
What Happens If You Are "Inside IR35"
If an engagement is determined to be inside IR35, tax and National Insurance are deducted at source by the fee-payer (often the recruitment agency) before payment reaches the contractor’s company, similar to being paid through PAYE, even though the contractor is still engaged through their own limited company rather than being a direct employee.
Contractors who disagree with a status determination can challenge it through the end client’s status disagreement process, which clients are required to have in place, providing a route to query the decision and its reasoning before accepting the tax treatment that follows from it.
Frequently Asked Questions
Who decides my IR35 status if I contract for a large private sector company?
The end client is generally responsible for making the status determination and must give you (and the agency, if there is one) a Status Determination Statement explaining the decision and the reasons behind it.
Does the off-payroll rule apply if my client is a small company?
Generally no — if the end client qualifies as small under the relevant company size tests, responsibility for the IR35 status decision remains with your own limited company, similar to the position across the private sector before the wider reform.
What does "inside IR35" mean in practice for my pay?
It means tax and National Insurance are deducted at source, typically by the agency or client paying your company (the fee-payer), before the payment reaches your limited company, similar to being paid through PAYE, even though you remain engaged via your own company.
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Can I challenge a status determination I disagree with?
Yes — clients are required to have a status disagreement process, allowing you to challenge the determination and its reasoning, and the client must respond within a set timeframe, either upholding or changing the decision with an explanation.
Who is liable if the IR35 status decision turns out to be wrong?
Liability can fall on the end client or the fee-payer in the contractual chain, depending on where the failure occurred (for example, not taking reasonable care over the determination, or the fee-payer failing to apply the correct tax treatment), rather than automatically falling on the contractor.
Does being inside IR35 give me employment rights with the end client?
No — an inside-IR35 tax determination affects how tax and National Insurance are collected, but it does not automatically give you the employment rights (such as unfair dismissal protection or redundancy pay) that a direct employee of the end client would have.
What factors are actually assessed when deciding IR35 status?
Key factors include the degree of control the client has over how, when and where the work is done, whether there is a genuine right of substitution (someone else could do the work instead of you), and mutuality of obligation between the parties — no single factor is decisive on its own.
Do I have to use HMRC’s CEST tool to check my status?
There is no legal requirement to use CEST, but many end clients rely on it (or a similar tool) as part of taking "reasonable care" over the determination — HMRC has said it will stand by a CEST result provided the information entered was accurate.
Does the off-payroll rule apply if I work through an umbrella company rather than my own limited company?
The off-payroll working rules are specifically about engagements through an intermediary such as your own personal service company — if you work through an umbrella company you are normally already taxed as an employee of the umbrella under PAYE, so the IR35 status determination process does not apply in the same way.
Can I still claim business expenses if I am found to be inside IR35?
Tax relief on travel and subsistence expenses is generally restricted for inside-IR35 engagements in the same way as for an equivalent employee, though your limited company may still be able to claim a small flat-rate deduction and relief for costs wholly incurred for the business, such as accountancy fees.
Disclaimer: This guide reflects UK rules as they generally apply in 2026/27. This guide is for general information only and is not professional advice. Consult a qualified adviser and refer to gov.uk for current official guidance before relying on any treatment.
