IR35 asks one question: would this contractor be your employee without the limited company in between? A yes puts the engagement inside IR35 and taxes the income like salary. The size of your business decides who has to answer.
Who decides status
Medium and large clients assess each contractor, issue a Status Determination Statement and deduct PAYE and National Insurance on inside engagements. Small clients are exempt and the contractor's company assesses itself. From 6 April 2026 a client counts as small when it meets two of three tests: turnover of £15 million or less, a balance sheet of £7.5 million or less, and 50 or fewer employees. The turnover and balance sheet limits rose from £10.2 million and £5.1 million, and size is measured on the previous financial year.
How status is tested
Control, the right of substitution and mutuality of obligation carry most weight. HMRC's CEST tool applies these factors, and HMRC stands by the result where the answers reflect the real arrangement.
What an inside determination costs
An inside engagement carries employer National Insurance at 15 percent above £5,000, the rate in force since 6 April 2025, on top of the contractor's own deductions. Many clients run inside roles through an umbrella company. Permanent roles are better employed directly or through an Employer of Record.