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IR35 & Self-Employed Contracts UK: Status Guide 2026

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Written by Brad Askew Solicitor (non-practising)
Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice.
Updated June 2026 · England & Wales
Getting employment status right is one of the trickiest parts of running a business in the UK. Whether you engage contractors, run a personal service company, or work for yourself through a limited company, the line between genuine self-employment and disguised employment matters enormously for tax, rights, and liability. HMRC takes a keen interest in how these arrangements are structured, and the IR35 rules (now commonly called the off-payroll working rules) have shifted significant responsibility onto clients and end-users. Getting it wrong can mean unexpected tax bills, National Insurance liabilities, and penalties. This page walks through what self-employed status actually means, how IR35 applies, and what both sides of a contracting arrangement should be thinking about before work starts.

What this document is

A self-employed contract sets out the terms under which an independent contractor provides services to a client or business. It is fundamentally different from an employment contract because the person doing the work is running their own business rather than being integrated into the client's organisation.

The contract typically covers scope of work, fees, timelines, intellectual property, confidentiality, and how either party can end the arrangement. IR35 (the off-payroll working rules) sits on top of this. It applies when someone provides services through an intermediary (usually their own limited company) in circumstances that would otherwise look like employment if the intermediary were removed.

If HMRC decides the arrangement falls 'inside IR35', income tax and National Insurance must be paid as if the worker were an employee, even though no formal employment relationship exists on paper. Since the 2021 reforms, medium and large private sector clients (and all public sector bodies) are responsible for determining status, not the contractor.

How to use this document

  1. Look honestly at the working relationship. Before drafting anything, think about how the work will actually happen day to day. Who controls when, where, and how the work is done? Is there a genuine right to send a substitute? Does the contractor take financial risk? These practical realities matter far more than what the contract says on its face.
  2. Draft a contract that reflects genuine self-employment. The written terms should mirror the real arrangement. Include clauses on the right of substitution, lack of mutuality of obligation, control over working methods, and the contractor's responsibility for their own equipment and insurance. A contract that contradicts how the work actually operates will not protect either side if HMRC investigates.
  3. Check IR35 status before engagement begins. Use HMRC's Check Employment Status for Tax (CEST) tool as a starting point, though it has well-known limitations. For borderline cases, consider a specialist status review. If the client is a medium or large business, they must issue a Status Determination Statement to the contractor explaining the decision and reasoning.
  4. Keep clear records throughout the engagement. Both parties should retain contracts, correspondence, invoices, and evidence of how the relationship worked in practice. If a substitute was used, document it. If the contractor worked for other clients during the same period, keep proof. These records are invaluable if HMRC later questions the arrangement.
  5. Review the position if circumstances change. A contract that started outside IR35 can drift inside it if the working pattern shifts (for example, if the contractor starts behaving more like a team member or the engagement keeps rolling without a clear end). Revisit status at renewal points and whenever the scope of work changes materially.

Common questions

If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £149.

Common questions

Q What is the difference between being self-employed and being inside IR35?
Self-employment describes your overall trading status with HMRC, meaning you run your own business and handle your own tax. IR35 is a separate set of rules that can apply to specific engagements where you work through a limited company. An engagement being 'inside IR35' means that particular contract is treated like employment for tax purposes, even though you remain self-employed generally.
Q Who decides whether IR35 applies to a contract?
Since April 2021 in the private sector (and earlier in the public sector), the responsibility sits with the end client if they are a medium or large business. They must assess each engagement and issue a Status Determination Statement. For small private sector clients, the contractor's own limited company remains responsible for deciding status and paying any tax owed.
Q Can a written contract protect me from IR35 on its own?
No. HMRC and the courts look at the reality of how work is performed, not just what the paperwork says. A well-drafted contract that accurately reflects a genuinely independent working relationship is helpful, but if the day-to-day arrangement looks like employment, the contract alone will not save you. Consistency between paper terms and actual practice is what matters.
Q What happens if HMRC decides an engagement was inside IR35 when it was treated as outside?
HMRC can recover unpaid income tax and National Insurance contributions, often going back several tax years. Interest and penalties may also apply. Under the current rules, liability generally falls on whoever made the status determination, which in most cases means the end client rather than the contractor, though this can shift depending on circumstances.
Q Do self-employed contractors have any employment rights?
Genuinely self-employed individuals have very limited statutory rights compared with employees or workers. They do not get holiday pay, sick pay, notice periods, or protection from unfair dismissal. However, they keep more control over how and when they work, and they can generally deduct legitimate business expenses from their taxable income.
Q What is a Status Determination Statement?
It is a written document that a medium or large client must give to a contractor (and anyone else in the contractual chain) setting out whether the engagement falls inside or outside IR35 and explaining the reasoning. The contractor can dispute the decision, and the client must respond within 45 days. Failing to issue one leaves the client carrying the tax risk.
Q Does IR35 apply if I work through an umbrella company?
Umbrella companies employ the worker directly and operate PAYE on their earnings, so IR35 does not apply in the same way. Tax and National Insurance are deducted at source as if the worker were an ordinary employee of the umbrella. This is why some contractors move to umbrellas when their engagements are determined inside IR35.
If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £149.

Sources

This guide is based on primary UK law and official guidance.

Brad Askew, Solicitor (non-practising)

Written & reviewed by

Brad Askew Solicitor (non-practising)

Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice. LegalDocuments.co.uk is not a law firm and does not provide regulated legal advice.

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Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.