IR35 legislation continues to shape the way contractors work and get paid in the UK. An IR35 check is not just a formality; it is a critical process that determines a contractor’s employment status for tax purposes. The outcome affects contractors, recruitment agencies, and end clients in different but equally important ways. Understanding these impacts helps all parties manage risk, remain compliant with HMRC, and maintain effective working relationships.

Understanding What an IR35 Check Is

An IR35 check is an assessment used to determine whether a contractor should be classed as an employee or self-employed for tax purposes. It examines the working relationship rather than just the written contract, focusing on factors such as control, substitution, and mutuality of obligation.

If a role is deemed inside IR35, the contractor is taxed like an employee under PAYE. If it is outside IR35, the contractor can be paid gross through their limited company. These decisions have financial and operational consequences across the supply chain.

Why IR35 Checks Matter More Than Ever

Since the IR35 reforms in the private sector, responsibility for conducting IR35 checks has shifted from contractors to end clients for medium and large businesses. This change has increased HMRC scrutiny and made accurate status assessments essential.

Incorrect IR35 checks can lead to tax liabilities, penalties, and reputational damage. As a result, businesses are taking IR35 compliance more seriously than ever.

How an IR35 Check Affects Contractors

For contractors, the outcome of an IR35 check has a direct impact on income, flexibility, and how they operate. An inside IR35 decision means the contractor will usually be paid through PAYE, often via an umbrella payroll company.

This results in income tax and National Insurance being deducted at source, reducing take-home pay compared to outside IR35 roles. Contractors may also lose certain tax efficiencies associated with running a limited company.

However, working inside IR35 can offer greater certainty and reduced administrative responsibility. Contractors no longer need to manage company accounts, VAT returns, or corporation tax for that assignment.

Impact on Contractor Working Arrangements

IR35 checks also influence how contractors work day to day. Outside IR35 roles typically allow greater autonomy, control over working hours, and the right to provide a substitute.

Inside IR35 roles often come with working practices that more closely resemble employment. Contractors must ensure that the status determination accurately reflects the reality of the engagement to avoid future disputes.

Financial Planning Challenges for Contractors

Changes in IR35 status can make financial planning more complex. Contractors moving from outside to inside IR35 may need to adjust pricing, reassess contract rates, and reconsider pension and insurance arrangements.

Clear communication and professional guidance help contractors adapt to these changes without unexpected financial strain.

How an IR35 Check Affects Recruitment Agencies

Recruitment agencies play a vital role in the IR35 process. They act as a link between contractors and end clients and are responsible for passing on the Status Determination Statement.

Agencies may also become the fee payer, meaning they are responsible for deducting tax and National Insurance when a role is inside IR35. This increases administrative workload and compliance responsibility.

Increased Compliance Responsibilities for Agencies

Agencies must ensure they understand the IR35 status of each engagement and process payments correctly. Failure to do so can result in liability for unpaid taxes.

Agencies also need to support contractors by explaining deductions, umbrella payroll arrangements, and payment timelines. Clear processes help agencies maintain trust and avoid disputes.

Commercial Impact on Agencies

IR35 checks can affect contractor supply and assignment rates. Some contractors may choose not to accept inside IR35 roles, making it harder for agencies to fill positions.

Agencies that offer compliant and transparent solutions, including trusted umbrella payroll options, are better positioned to retain contractors and clients.

How an IR35 Check Affects End Clients

End clients now carry the greatest responsibility in the IR35 process. They must conduct IR35 checks using reasonable care and issue accurate Status Determination Statements.

If an end client fails to comply, HMRC can transfer tax liability back to them. This risk has made IR35 compliance a key concern for finance, HR, and legal teams.

Operational Changes for End Clients

IR35 checks often require changes to procurement and onboarding processes. End clients must gather information about working practices, review contracts, and document decision-making.

This can slow down hiring if processes are not well defined. However, robust IR35 procedures reduce long-term risk and create consistency across the organisation.

Financial and Reputational Risk for End Clients

Incorrect IR35 determinations can result in significant tax bills, penalties, and interest. Public IR35 disputes can also damage a company’s reputation and contractor relationships.

End clients that invest in proper IR35 checks demonstrate compliance and professionalism, which helps attract high-quality contractors.

The Importance of Reasonable Care

HMRC expects end clients to take reasonable care when conducting IR35 checks. This means using accurate information, applying legislation correctly, and avoiding blanket determinations.

Failure to take reasonable care can invalidate status decisions and increase exposure to HMRC enforcement action.

The Role of Professional Support in IR35 Checks

Given the complexity of IR35, many businesses seek professional support. Specialist advisors help interpret legislation, assess contracts and working practices, and document decisions.

Professional support reduces the risk of errors and provides reassurance during HMRC reviews.

How The Infinity Group Supports IR35 Compliance

The Infinity Group provides expert guidance on IR35 checks for contractors, agencies, and end clients across the UK. Their services focus on accurate assessments, clear documentation, and practical compliance solutions.

By working with The Infinity Group, businesses benefit from tailored advice that reflects real working practices and current HMRC expectations. This support helps all parties manage IR35 obligations confidently and consistently.

Managing Disputes and Status Challenges

IR35 checks can sometimes lead to disagreements. Contractors have the right to challenge a status determination if they believe it is incorrect.

A clear dispute process helps resolve issues quickly and fairly. Professional advisors can assist in reviewing evidence and reassessing decisions where necessary.

Long-Term Impact of IR35 on the UK Contracting Market

IR35 checks have reshaped the contracting landscape. While some contractors have moved to permanent roles, others continue to operate successfully within compliant frameworks.

Businesses that adapt to IR35 requirements are better positioned to access flexible talent without unnecessary risk.

Conclusion

An IR35 check affects contractors, agencies, and end clients in different but interconnected ways. From take-home pay and working arrangements to compliance responsibilities and financial risk, the impact of IR35 is far-reaching.

Understanding these effects and taking a collaborative approach to compliance is essential. With expert support from providers such as The Infinity Group, all parties can navigate IR35 checks effectively, reduce risk, and maintain productive working relationships in the evolving UK contracting environment.