IR35 remains one of the most misunderstood and misapplied areas of UK employment and tax law. Despite the off payroll working reforms being in effect for several years, many organisations - and contractors themselves - are still getting key aspects wrong, often at significant financial and reputational cost.

Whether you’re an employer engaging contractors or a candidate working through a limited company, understanding IR35 properly is essential. This article breaks down what IR35 is, where employers commonly go wrong, and what both sides need to do to stay compliant while maintaining flexibility.

What is IR35 (in simple terms)?
IR35 (also known as the Intermediaries Legislation) is designed to determine whether a contractor is genuinely self?employed or effectively working as an employee for tax purposes.

If a contractor is deemed to be “inside IR35”, they are considered an employee in the eyes of HMRC and must pay broadly the same tax and National Insurance as a permanent employee.

If they are “outside IR35”, they are genuinely operating as an independent business and can be paid gross via their limited company. Since April 2021, responsibility for determining IR35 status in the private sector (for medium and large businesses) sits with the end client, not the contractor.

What Employers Still Get Wrong
Despite clearer rules, several recurring mistakes continue to catch employers out.

1. Blanket IR35 Determinations
One of the most common - and risky - errors is applying a blanket decision that all contractors are inside IR35. HMRC has been clear: status must be assessed on a role by role and contract by contract basis. Failing to do so can invalidate determinations and expose businesses to backdated tax liabilities, interest, and penalties.

Incorrect: “We treat all contractors as inside IR35”
Correct: Individual, evidence based assessments per engagement

2. Confusing Job Titles with Working Practices

IR35 is not determined by job title, seniority, or day rate.

What matters is how the contractor actually works in practice, including:

• Level of control
• Right of substitution
• Mutuality of obligation
• Financial risk
• Integration into the business

Two contractors doing similar work can fall on opposite sides of IR35 depending on how their engagement is structured and managed.

3. Over Reliance on CEST (or Ignoring It Entirely)

HMRC’s CEST tool is widely used, but it is not infallible.

• Employers often input overly cautious answers
• Assumptions are made that don’t reflect reality
• Outcomes are accepted without challenge or review

While CEST can form part of the process, it should be backed up by:

• A well drafted contract
• Evidence of working practices
• Professional advice where needed

4. Treating Inside IR35 Contractors Like Permanent Staff

If a contractor is inside IR35, they are a deemed employee for tax purposes only, not an actual employee.

Yet many organisations:

• Exert excessive control
• Include contractors in internal appraisals
• Restrict autonomy or impose fixed hours

This not only increases IR35 risk but can raise employment law concerns if the individual challenges their status.

5. Poor Communication and Dispute Handling
Under the legislation, contractors have the right to:

• Receive a Status Determination Statement (SDS)
• Challenge that determination

Many employers fail to:

• Clearly explain decisions
• Provide reasoning and evidence
• Respond properly to disputes within the required timeframe

This weakens compliance and damages contractor relationships.

What Contractors (Candidates) Still Get Wrong
IR35 mistakes aren’t limited to employers. Contractors also need to be realistic and informed.

1. Assuming Limited Company = Outside IR35
Simply operating through a limited company does not mean you’re outside IR35.

Status is based on:

• Your contract
• Your working practices
• How you engage with the client

HMRC looks beyond structure to reality.

2. Ignoring the Contract vs Reality Gap
A well written contract is useless if it doesn’t reflect how you actually work.

For example:

• Contract says “right of substitution” but it’s never allowed
• Contract states independence but you report like an employee

HMRC will always prioritise real world behaviour over paperwork.

3. Chasing Outside IR35 Roles Without Understanding Risk
Some candidates push aggressively for outside IR35 roles without recognising:

• The commercial risk taken by the client
• The compliance burden on employer
• The scrutiny applied by HMRC

Strong outside IR35 roles exist but they require clear independence and mutual understanding.

What Good IR35 Compliance Looks Like
For Employers:

• Role?specific IR35 assessments
• Clear SDS documentation
• Contracts aligned with working practices
• Manager training on contractor engagement
• Regular reviews for long?term assignments

For Contractors:

• Understanding your IR35 status and why
• Reviewing contracts carefully
• Operating with visible independence
• Keeping evidence of business?to?business activity
• Taking professional advice where appropriate

Why Getting IR35 Right Matters
When IR35 is mishandled:

• Employers face tax risk, fines, and loss of contractor talent
• Candidates face unexpected tax bills and uncertainty
• Projects suffer due to disengagement or talent shortages

When it’s handled correctly and transparently, IR35 doesn’t have to be a barrier to flexible working, it becomes a framework that supports it. IR35 isn’t going away, and neither is the contractor market.

The organisations and candidates that thrive are those who understand the rules, respect the risks, and focus on fair, well?structured engagements rather than shortcuts or assumptions. Getting IR35 right is less about avoiding tax and more about creating clarity, trust, and sustainable working relationships, on both sides.