IR35 for Tradespeople UK — Are You Inside or Outside? (2026)

IR35 — the off-payroll working rules — is one of the most misunderstood areas of tax for UK subcontractors and self-employed tradespeople. It matters because getting it wrong can result in a significant unexpected tax bill: HMRC treats "inside IR35" workers as employees for tax purposes, meaning they pay Income Tax and National Insurance as if employed, without the employment rights that come with actual employment.

This guide explains IR35 in plain English: who it applies to, how to determine your status, how CIS interacts with IR35, and what you should do if you're unsure.

What IR35 actually is

IR35 (Intermediaries Legislation) was introduced to prevent "disguised employment" — where an individual works as an employee in practice but operates through a limited company to pay less tax. If you would be an employee if hired directly (rather than through your limited company), IR35 says you should pay the same taxes as an employee.

IR35 only applies if you operate through an intermediary — typically a personal service company (PSC), which is a limited company you own and work through. If you're a sole trader, IR35 does not apply to you — the self-employment vs employment distinction is handled differently for sole traders.

Who determines IR35 status?

This depends on who your client is:

• Private sector medium or large businesses (end clients): the end client determines your IR35 status since April 2021 (the off-payroll working rules reform). They must provide you with a Status Determination Statement (SDS) explaining their decision.
• Small businesses (private sector): a small business is one that meets two of: turnover ≤ £10.2m, balance sheet ≤ £5.1m, ≤ 50 employees. If your end client is small, you (your limited company) determine your own IR35 status.
• Public sector clients (NHS, councils, government): the public authority determines your status, similar to the medium/large private sector rule.

The IR35 status tests — what HMRC looks at

IR35 status is determined by the "working practices" — what your working arrangement actually looks like, not just what the contract says. The key factors:

Substitution

Can you send a substitute to do the work in your place? If yes, and if the client must accept a suitable substitute (not just a specific person), this is a strong indicator of self-employment (outside IR35). If the client requires you personally to do the work, this points toward employment (inside IR35).

For tradespeople with specialist qualifications (Gas Safe, NICEIC approval), true substitution requires the substitute to hold the same qualifications — which is reasonable and HMRC accepts this.

Control

Does the client control how, where and when you work? An employee is typically told when to arrive, given instructions throughout the day and uses the employer's tools. A self-employed tradesperson decides how to do the work, uses their own tools and equipment, and typically just has an agreed output (the job completed to standard).

Working on a construction site where the site manager directs your work daily looks more like employment. Working on a series of discrete jobs where you determine how to do them looks more like self-employment.

Mutuality of obligation (MOO)

Is the client obliged to offer you work, and are you obliged to accept it? In employment there's an implicit obligation: the employer provides work and the employee performs it. In genuine self-employment, you can decline work and the client can go elsewhere.

If you work for one client consistently and both parties expect the relationship to continue, HMRC may argue mutuality exists. Multiple concurrent clients significantly reduces this risk.

Other factors

• Financial risk: do you quote for the job and bear the risk if it goes over? Self-employment indicator.
• Equipment: do you use your own tools and van? Self-employment indicator.
• Exclusive work: do you work for multiple clients? Multiple clients indicates genuine self-employment.
• Part and parcel of the business: are you integrated into the client's organisation (e.g., using their email address, listed on their website)? This indicates employment.

How CIS interacts with IR35

The Construction Industry Scheme (CIS) and IR35 are separate regimes that can apply simultaneously to the same contractor:

• CIS applies to construction work, deducting 20% (or 30% if unverified) from payments to subcontractors, covering basic rate Income Tax and some NICs.
• IR35, if applicable, requires the full employment tax treatment — essentially PAYE — which is more than CIS deductions cover.

Being subject to CIS does not mean you're automatically outside IR35. They're different things. However, CIS subcontractors who work through personal service companies and are determined to be inside IR35 by their client (or by HMRC) face a more complex tax position — they may be double-taxed in some situations (CIS deductions plus IR35 payroll taxes), which requires careful accounting.

For most sole traders who subcontract under CIS, IR35 is not relevant — CIS handles the tax deduction and your self-assessment handles the rest. IR35 is only a concern if you operate through a limited company.

HMRC's CEST tool

HMRC provides a Check Employment Status for Tax (CEST) tool at gov.uk. It asks a series of questions about your working arrangement and returns a verdict: employed, self-employed, or unable to determine.

CEST is widely used but has been criticised for not accounting for mutuality of obligation in all cases. However, HMRC has committed to stand by CEST results if the information entered is accurate. Using CEST and keeping the result is a reasonable first step — but get professional advice if your situation is borderline.

Practical steps for tradespeople

• Sole traders: IR35 doesn't apply to you. Your self-employment status is determined by normal employment tests, not IR35.
• Limited company contractors working for large/public sector clients: your client determines your status. Ask for a Status Determination Statement if you haven't received one.
• Limited company contractors working for small business clients: you determine your own status. Run CEST, keep the result, and document the working practices that support your conclusion.
• If you're inside IR35: the fee-payer (usually the agency or end client) is responsible for deducting PAYE tax. Ensure your contract reflects this and check the payments coming through.
• Get an accountant who understands construction: IR35 is complex enough that professional advice is worth the cost — especially if you're inside IR35 and need to ensure you're not over- or under-paying tax.