If you engage freelancers or contractors through their own limited company or Personal Service Company (PSC), you may need to consider the IR35 and Off-Payroll Working Rules.
The rules are designed to ensure that someone who would effectively be an employee if they were engaged directly pays broadly the same Income Tax and National Insurance as an employee.
So, what does that mean for your business?
Does IR35 apply to every business?
The Off-Payroll Working Rules apply to all public sector organisations and medium and large private and voluntary sector organisations.
For the purposes of the current Off-Payroll Working Rules, a private sector company will generally be considered small if it meets at least two of the following three criteria:
- Annual turnover of £10.2 million or less
- Balance sheet total of £5.1 million or less
- 50 or fewer employees on average
If your business is classed as small, responsibility for determining whether IR35 applies generally remains with the contractor's intermediary rather than your business. Group structures and certain other circumstances can affect this, so it's always worth checking the latest HMRC guidance.
Although the general company-size thresholds increased in 2025, HMRC has confirmed that the higher thresholds will not have a practical impact on the Off-Payroll Working Rules until 6 April 2027 at the earliest.
How do you determine whether someone is inside or outside IR35?
IR35 isn't determined simply by someone's job title or how long they work with you. Each engagement needs to be considered individually.
Some of the factors that can help determine employment status include:
- the level of control and direction the client has over the contractor
- whether there is a genuine right of substitution
- the level of financial risk taken by the contractor
- who provides the necessary equipment
- how integrated the contractor is within the client's organisation
HMRC also provides its Check Employment Status for Tax (CEST) tool to help businesses make employment-status determinations. Where the client is responsible for the decision, HMRC requires it to take reasonable care and provide a Status Determination Statement explaining the outcome.
Using freelancers doesn't have to be complicated
IR35 doesn't mean you can't use freelancers. It simply means it's important to understand how the individual is being engaged and make sure the appropriate processes are followed.
At Beyond The Book, we regularly support businesses with freelance and contract recruitment and can help you understand the practical considerations involved when bringing freelance talent into your team.
Want more detail?
We've put together a more detailed IR35 & Off-Payroll Working Guide, covering the rules, employment-status considerations and some of the key factors businesses should be aware of.
Download our full IR35 & Off-Payroll Working Guide
If you'd like to discuss a freelance requirement or have questions about how we work with freelance talent, contact us at [email protected] or call 01789 451510.
This article is intended as general information and should not be considered tax or legal advice. For advice relating to your individual circumstances, refer to HMRC guidance or seek appropriate professional advice.
