How IR35 status is decided

Who makes the decision

It depends entirely on the size of the end client, and nothing else.

• Public sector clients, and medium or large private clients. The client decides. It has to take reasonable care, produce a status determination statement and pass it to you and to the agency. If the decision is inside IR35, the fee payer, usually the agency, deducts tax and carries the liability if HMRC disagrees.
• Small private clients. Nothing changed for these in 2021. You assess your own status under the original rules, your company accounts for any tax due, and the liability is yours. The small company thresholds rose in April 2025, so a client that used to be medium may not be any more. It is worth asking.

What a status determination statement has to contain

A valid SDS is not a tick in a box. It must state the conclusion, inside or outside, and give the reasons for it, and the client must be able to show it considered your actual engagement. You are entitled to a copy before the work starts. If the agency in the chain has not been given one, it cannot lawfully rely on a decision to deduct tax.

The tests, and how they are weighed

Status comes from a body of employment case law rather than a statutory checklist, which is why two reasonable people can look at the same contract and disagree. The questions that carry the most weight:

Personal service and the right of substitution

If the client is buying you personally and nobody else will do, that points hard at employment. A right to send a substitute has to be real: you choose the replacement, you pay them, and the client cannot veto for any reason it likes. A substitution clause that has never been usable in practice will not save a determination.

Control

Not whether anyone can tell you what the goal is, but whether they direct how you reach it, move you between tasks at will, set your hours and location, and manage you like staff. Being asked to attend a standup is not control. Being assigned a sprint of unrelated tickets by a line manager is.

Mutuality of obligation

Whether there is an obligation to keep offering and accepting work. HMRC takes a narrower view of this than most contractors do, and CEST does not test it at all, which is one of the tool's longest running criticisms.

The rest of the picture

Financial risk, having other clients, providing your own equipment, correcting defects at your own cost, not receiving benefits, not being integrated into the organisation. Each is small on its own. Together they tell a court whether you are in business on your own account.

CEST, and what it is worth

CEST is HMRC's own online tool. It is free, it takes about fifteen minutes, and HMRC will stand behind the answer if the inputs were accurate and match reality. It is also imperfect: it ignores mutuality of obligation, and it returns undetermined often enough that clients regularly treat an inconclusive result as a reason to default to inside.

Run it yourself before you challenge anything, and keep the printout with the date on it. If your own run comes out outside and the client's comes out inside, the difference is in the answers, and asking which questions were answered differently is a far more productive conversation than arguing about the conclusion.

Challenging a determination

The client-led disagreement process is a statutory right, not a favour. It works best when it is specific and unemotional.

1. Ask for the SDS and the reasons in writing, along with the CEST answers if one was used.
2. Reply in writing setting out which specific factors you think were assessed wrongly and why, referring to the terms of your engagement and how the work is really done. Attach your own CEST result if it helps.
3. Say plainly that you are invoking the client-led disagreement process, and note the 45 day deadline.
4. If the answer is unchanged, decide whether the contract is still worth taking at the inside rate, and negotiate the rate instead. There is no appeal to HMRC or to a tribunal against a determination itself.

If you believe the client applied a blanket policy, say so. Reasonable care is a legal requirement, and where it has not been taken the liability stays with the client rather than moving down the chain, which gives the person reading your letter a reason to look again.

Insurance and evidence

For engagements where you carry the risk, which now means small clients, an independent contract review and IR35 investigation cover are cheap next to the cost of a defence. Keep every determination, every contract and a file note of how the work actually ran. Enquiries arrive years later, when memories have gone.

When you are ready to look for work where the client has already done this properly, the outside IR35 board lists roles that state their status up front, and the calculator tells you what an inside offer would have to pay to match one.