IR35 in 2026 — What Every UK Hiring Manager Needs to Know
IR35 determines whether your UK contractors should be taxed as employees. Here's what changed in 2021, what's stayed the same, and how EOR removes the risk entirely.
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What is IR35?
IR35 — formally the off-payroll working rules — is UK tax legislation that determines whether a contractor working through a Personal Service Company (PSC) should be taxed as an employee for income tax and National Insurance purposes. If a contractor is deemed "inside IR35", the tax treatment changes significantly.
What changed in 2021
Before April 2021, contractors were responsible for determining their own IR35 status. Since April 2021, for medium and large private-sector businesses, the responsibility for making the Status Determination Statement (SDS) sits with the end client — that's you.
If HMRC investigates and determines a contractor was inside IR35 but was treated as outside, the liability for unpaid income tax and National Insurance falls on the fee-payer in the supply chain — typically your business or your EOR.
How IR35 status is determined
HMRC applies a multi-factor test looking at: substitution rights (can the contractor send a substitute?), control (do you control how and when the work is done?), and mutuality of obligation (is there an ongoing expectation of work?). The more a contractor resembles a full-time employee in practice, the more likely they are to be inside IR35.
How EOR eliminates IR35 risk
When you hire a worker through an EOR, the EOR employs them directly under a compliant employment contract. There is no PSC in the chain, no SDS required, and no IR35 determination needed. The employment relationship is explicit and fully compliant from day one.
For companies moving contractors onto payroll — whether due to IR35 concerns or headcount growth — an EOR is the fastest and cleanest route to compliance.
What to do if you currently use contractors in the UK
- Conduct an IR35 status review on each contractor engagement using HMRC's CEST tool
- Issue Status Determination Statements for all relevant engagements
- Consider moving high-risk contractors to EOR employment
- Ensure your supply chain (agencies, umbrella companies) is compliant
March 23, 2026
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