IR35 legislation continues to be one of the most challenging compliance areas for UK businesses, contractors, and recruitment agencies. The off-payroll working rules place responsibility on end clients to determine a contractor’s employment status and ensure the correct tax treatment is applied. While IR35 checks are now a routine part of engaging contractors, many organisations still make costly mistakes that expose them to HMRC penalties, backdated tax, and reputational damage. Understanding these common errors and knowing how to avoid them is essential for maintaining compliance and reducing risk.

Failing to Understand IR35 Responsibility

One of the most common mistakes during IR35 checks is misunderstanding who holds responsibility. Under current UK rules, responsibility for determining employment status usually sits with the end client, not the contractor. Some businesses incorrectly assume that agencies or contractors are responsible for IR35 checks, which can lead to non-compliance.

To avoid this mistake, end clients must clearly understand their obligations and ensure they are actively involved in the IR35 determination process. Clear contractual arrangements and defined responsibilities across end clients, agencies, and umbrella providers are critical.

Over-Reliance on HMRC CEST Tool

While HMRC’s Check Employment Status for Tax (CEST) tool is widely used, relying on it alone is a common mistake. The tool does not always capture the full picture of a contractor’s working practices and may produce inaccurate results if information is entered incorrectly.

Businesses should use CEST as part of a wider IR35 assessment, not as the sole deciding factor. Supplementing the tool with expert reviews and practical assessments of working arrangements helps ensure a more accurate and defensible outcome. Providers such as The Infinity Group support businesses by combining tools with expert-led IR35 checks.

Ignoring Actual Working Practices

Another frequent error is basing IR35 checks solely on written contracts rather than actual working practices. HMRC places significant weight on how the contractor works in reality, not just what the contract states.

For example, if a contract allows substitution but in practice substitution is never permitted, HMRC may disregard the clause. Businesses should assess day-to-day working arrangements, including control, supervision, and integration into the organisation, to ensure IR35 determinations reflect reality.

Blanket IR35 Determinations

Issuing blanket inside IR35 or outside IR35 decisions for all contractors is a major compliance risk. HMRC has clearly stated that each engagement must be assessed individually, and blanket determinations may be challenged.

To avoid this, businesses should carry out individual IR35 checks for each contractor role, even if roles appear similar. Individual assessments demonstrate reasonable care and significantly reduce the risk of HMRC disputes.

Poor Documentation and Record Keeping

Failing to document IR35 decisions and the reasoning behind them is another common mistake. Without clear records, businesses may struggle to defend their determinations during an HMRC review.

Proper documentation should include assessment results, supporting evidence, contracts, and records of working practices. Maintaining an audit trail shows that reasonable care has been taken. The Infinity Group helps organisations implement structured documentation processes that support compliance and audit readiness.

Not Issuing Status Determination Statements Correctly

A Status Determination Statement (SDS) is a legal requirement under IR35 rules. Some businesses either fail to issue an SDS or provide one without sufficient reasoning.

An SDS must clearly state whether the role is inside or outside IR35 and explain how the decision was reached. It must be passed to the contractor and any relevant agencies. Clear, compliant SDS processes are essential to avoid disputes and penalties.

Failing to Review IR35 Status Regularly

IR35 status is not a one-time decision. Changes to working practices, contract terms, or project scope can affect employment status. Many businesses fail to review IR35 determinations over time, leading to outdated and inaccurate decisions.

Regular reviews should be scheduled, particularly when contracts are extended or roles change. Ongoing IR35 checks help ensure continued compliance and reduce the risk of retrospective tax liabilities.

Lack of Internal Knowledge and Training

IR35 legislation is complex, and many mistakes occur due to a lack of understanding within internal teams. HR, finance, and procurement staff may not fully understand the criteria used to assess employment status.

Providing training and guidance to internal stakeholders helps improve the quality of IR35 checks. Alternatively, outsourcing IR35 assessments to specialists such as The Infinity Group ensures that determinations are handled by experienced professionals with up-to-date knowledge of HMRC guidance.

Poor Communication with Contractors and Agencies

Miscommunication during IR35 checks often leads to disputes and dissatisfaction. Contractors who do not understand how their status was determined may challenge decisions or disengage from roles.

Clear communication is essential throughout the IR35 process. Explaining assessment outcomes, providing reasoning, and offering dispute resolution processes builds trust and reduces conflict between end clients, agencies, and contractors.

Not Having a Dispute Resolution Process

HMRC requires businesses to have a process in place for contractors to challenge IR35 determinations. Some organisations overlook this requirement or fail to respond within the required timeframe.

A clear and timely dispute resolution process ensures compliance and demonstrates reasonable care. Businesses should document how disputes are handled and ensure responses are provided promptly and professionally.

Underestimating Financial and Legal Risk

Many businesses underestimate the financial impact of incorrect IR35 checks. HMRC can recover unpaid tax, National Insurance Contributions, interest, and penalties, which can amount to significant sums.

Understanding the potential consequences highlights the importance of accurate and compliant IR35 assessments. Investing in professional support reduces long-term risk and protects the business from unexpected liabilities.

How Professional Support Helps Avoid IR35 Mistakes

Professional IR35 support services help businesses avoid common pitfalls by providing expert assessments, clear documentation, and ongoing guidance. Providers like The Infinity Group work closely with end clients and agencies to ensure IR35 checks are accurate, consistent, and compliant with HMRC expectations.

By outsourcing IR35 checks, businesses gain access to specialist knowledge, reduce administrative burden, and strengthen their compliance framework.

Conclusion

IR35 checks are a critical compliance requirement for UK businesses engaging contractors. Common mistakes such as blanket determinations, poor documentation, and reliance on incomplete assessments can lead to significant financial and legal consequences.

By understanding these mistakes and taking proactive steps to avoid them, businesses can reduce risk and ensure compliance. Working with experienced providers such as The Infinity Group enables organisations to carry out IR35 checks correctly, confidently, and in line with HMRC regulations, supporting long-term stability and contractor engagement.