For contractors, the rulings on ‘disguised employees’, usually described as IR35, are often confusing, but also something they absolutely need to keep up with.
Accepting a contract with pay determined on the basis that it will be outside IR35 (that is, not classed as if you were an employee) and then finding that you’re now being paid as if you are inside IR35 can change that contract from profitable to a loss maker. And, while the broad strokes of the legislation are now more than two decades old, HMRC has adjusted and updated regulations frequently, partly to better reflect the way ‘disguised employees’ actually work, and partly to ‘patch out’ issues and loopholes as they arise.
With that in mind, this IR35 FAQ is up to date as of July 2026. Particularly if you’re reading this in the 27/28 financial year or later, it may be worth checking that this information is up to date.
A disguised employee is a contractor filling a role that would otherwise be filled by an employee and doing so in the same way that employee would. This practice arose when some business owners noticed that there were some roles which could be outsourced to contractors and save the business money by doing so; however, they wanted to retain the extra control over the work which usually helps to distinguish an employee from a contractor.
This resulted in a number of knock-on effects to tax and National Insurance Contributions (NICs).
There are three broad tests used in determining whether your contract falls inside or outside IR35. These are:
- Control
- Mutuality of Obligation
- Substitution
It’s important to note that whilst your contract may determine an outcome, in reality and practice this must also be applied.
Control
The control test asks who decides how, when, and where the contractor does their work. If the contractor is in control of the order of the tasks they tackle, the methods they use, and the place they work from, they will pass the test of control.
Some contractor roles (for example, under the CIS or in the oil & gas industry) can only be done in a specific place; some IT consultants may be called in only when a system needs to be fixed, and will be expected to go to work as soon as possible. There are also cases where tasks may need to be completed in a specific order for other reasons.
Given all of this, the test of control has many edge cases.
Mutuality of Obligation
There is an ongoing mutual expectation between employer and employee; the employer will offer work continually, and the employee will accept that work. Contractors, in contrast, are usually brought on for the duration of a given project, and while they may agree to continue working with the same client on further contracts, there’s no expectation or requirement of continuous work.
Substitution
Contractors are required to carry out specific work. It is their right to choose to do this by providing a substitute subcontractor if they are unavailable or require other skills in the project. By and large an employee cannot make that decision for themselves.
These three pillars drive the determination of whether a contract is deemed inside or outside IR35, however there are other considerations that are looked at in the contract and in reality.
No, being paid through a limited company does not affect your IR35 status. In particular, contractors who have multiple contracts active at a given time, only one of which is inside IR35, may still find the contractor limited company a valuable asset.
If the scope of the work you’re contracted for changes or if working practices change, your role might be assessed differently under the core tests. If that change was enough to change the determination then yes, your status can change during a contract.
This is one reason that we encourage contractors to be aware of how IR35 is determined even where the responsibility to make that determination falls with the end client; it can help you to be aware if changes to your work could affect your bottom line.
If you have any other questions or you’re not sure where a prospective contract would fall on the core tests, we recommend talking to experts so that you can make more informed decisions. Please get in touch and we’ll be happy to help.
