IR35 legislation plays a major role in how contractors, end clients, and agencies operate in the UK. Designed to prevent disguised employment, IR35 ensures that individuals working like employees pay broadly the same tax as employees, even when operating through limited companies or intermediaries. HMRC actively carries out IR35 checks to assess compliance, and understanding how these checks work is essential for avoiding penalties and disruption.

What Is an IR35 Check

An IR35 check is HMRC’s process of reviewing a contractor’s working arrangement to determine whether it falls inside or outside IR35. The assessment focuses on the reality of the working relationship rather than just the written contract. HMRC looks at how the contractor operates day to day, who controls the work, and whether the arrangement resembles employment.

Who HMRC Targets for IR35 Checks

HMRC may initiate IR35 checks for a variety of reasons. Contractors working through personal service companies, end clients engaging off-payroll workers, and agencies involved in contractor supply chains may all be reviewed. HMRC often targets sectors with high contractor usage, such as IT, engineering, construction, and professional services. Checks may be triggered by inconsistencies in tax returns, sector-wide compliance campaigns, or random audits.

How HMRC Starts an IR35 Investigation

HMRC typically begins an IR35 check by contacting the contractor, end client, or both. This may involve a formal letter requesting information about contracts, working practices, and payment structures. HMRC may ask for copies of agreements, invoices, correspondence, and details of how work is assigned and managed. The process is usually thorough and can take several months depending on complexity.

Key Factors HMRC Reviews During IR35 Checks

HMRC focuses on several core tests when conducting IR35 checks. Control is a major factor, assessing who decides how, when, and where the work is done. Substitution is another key area, examining whether the contractor can genuinely send a replacement. Mutuality of obligation is also reviewed to determine whether there is an ongoing expectation of work and payment. HMRC evaluates these factors together to form an overall picture.

The Role of Contracts Versus Working Practices

While contracts are important, HMRC places significant weight on actual working practices. Even if a contract states that a contractor is independent, HMRC will look beyond the wording to see how the relationship works in reality. If working practices contradict the contract, HMRC is likely to rely on the practical arrangement. This is a common area where businesses and contractors face challenges during IR35 checks.

HMRC’s Use of the CEST Tool

HMRC provides the Check Employment Status for Tax tool, known as CEST, to help determine IR35 status. HMRC may refer to CEST outcomes during checks, but the tool has limitations. Incorrect inputs or unclear working arrangements can lead to inaccurate results. HMRC may still challenge a CEST determination if it believes the information provided does not reflect reality.

What Happens If HMRC Finds Non-Compliance

If HMRC concludes that an engagement falls inside IR35, it may demand unpaid income tax and National Insurance contributions. Interest and penalties may also apply, depending on the circumstances and level of care taken. For engagements after the off-payroll reforms, liability may sit with the end client or fee payer rather than the contractor. This can result in significant financial exposure for businesses.

How Long IR35 Checks Can Take

IR35 checks are rarely quick. They can last several months or longer, particularly if HMRC requests additional information or disputes responses. During this time, businesses and contractors may experience uncertainty and disruption. Having organised records and professional support can help reduce delays and improve outcomes.

How Contractors Can Prepare for IR35 Checks

Contractors should ensure their contracts accurately reflect genuine working practices and that they operate in a way consistent with being outside IR35 if that is their position. Keeping clear records, evidence of substitution, and proof of independent working is essential. Contractors may also consider professional IR35 reviews to identify risks before HMRC raises questions.

How End Clients Should Manage IR35 Compliance

End clients have increased responsibility under the off-payroll working rules. They must carry out reasonable care when determining IR35 status and issue status determination statements. Failure to do so can result in liability transferring to the client. Businesses should have clear processes, documented assessments, and regular reviews of contractor engagements to remain compliant.

The Importance of Professional Support During IR35 Checks

IR35 legislation is complex, and HMRC checks can be challenging to navigate alone. Professional advisors understand HMRC’s approach and know how to present evidence effectively. Firms such as The Infinity Group support contractors and businesses by reviewing contracts, assessing working practices, and assisting during HMRC enquiries. This guidance can significantly reduce risk and stress.

How The Infinity Group Helps With IR35 Compliance

The Infinity Group works with UK contractors and end clients to manage IR35 obligations confidently. Their services include IR35 assessments, compliance reviews, and ongoing advisory support. By helping clients understand their responsibilities and prepare for potential HMRC checks, The Infinity Group plays a key role in reducing financial and operational risk.

Common Mistakes That Trigger HMRC Attention

Many IR35 issues arise from inconsistent documentation, outdated contracts, or misunderstanding of the rules. Relying solely on contract wording without aligning working practices is a common mistake. Another is failing to update IR35 assessments when roles or responsibilities change. Addressing these issues proactively helps reduce the likelihood of HMRC intervention.

What to Expect Emotionally and Operationally

An HMRC IR35 check can be stressful and time-consuming. Requests for information, uncertainty over outcomes, and potential financial exposure can impact contractors and businesses alike. Having expert support, clear records, and open communication helps make the process more manageable and less disruptive.

Conclusion

HMRC IR35 checks are a reality for many UK contractors and businesses operating with off-payroll workers. Understanding how HMRC conducts these checks and what to expect is essential for staying compliant and avoiding costly outcomes. By preparing properly, maintaining accurate records, and seeking expert guidance from specialists such as The Infinity Group, contractors and end clients can approach IR35 checks with greater confidence. In a complex and closely monitored area of UK tax law, proactive compliance is the best defence.