IR35 Policy Writers

IR35 policies set out how a business manages the use of off-payroll workers, such as contractors or consultants, to ensure compliance with UK tax rules.

These policies help determine whether an individual should be taxed as an employee or self-employed under the off-payroll working legislation.

What Do IR35 Off-Payroll Workers Policies Cover?

An IR35 policy typically includes:

Definition of off-payroll working and who it applies to
The company’s process for assessing IR35 status
Use of HMRC’s CEST (Check Employment Status for Tax) tool
Roles and responsibilities for making status determinations
Keeping records of assessments and decisions
Responding to challenges from workers or agencies
Payment procedures for workers inside and outside IR35

From April 2021, medium and large private sector businesses became responsible for determining the tax status of off-payroll workers. Incorrect handling can lead to financial penalties and HMRC investigation.

A clear policy helps ensure compliance, supports accurate contractor classification, and protects the business from unexpected tax liabilities.

Legal Basis

The off-payroll working rules, commonly called IR35, sit in ITEPA 2003 Chapter 8 and Chapter 10.

Since 6 April 2021, medium and large private-sector clients (and all public-sector clients since April 2017) are responsible for determining whether a contractor's engagement falls inside IR35 and, where it does, for operating PAYE and NIC.

HMRC's Check Employment Status for Tax (CEST) tool produces the formal Status Determination Statement (SDS).

From 6 April 2024, HMRC operates a set-off mechanism allowing tax already paid by the worker or their personal service company to be offset against the deemed-employer liability, significantly reducing exposure on historic mis-determinations but not removing the determination duty itself.

Common Compliance Pitfalls

Blanket inside-IR35 determinations. Lawful only if reasonable care is exercised on a case-by-case basis; HMRC has confirmed blanket determinations breach the reasonable-care requirement.
SDS not issued before payment. Without an SDS, the client retains liability throughout the supply chain.
Status disagreement process missing. Workers have a statutory right to challenge the determination and to a written response within 45 days.
Small-company exemption applied by group. The exemption applies at the parent-group level for connected companies, not at the individual subsidiary level.
Statement of Work (SoW) treated as automatic outside-IR35. An SoW only changes the analysis if there is a genuine outsourced service with deliverables outside the client's control.

Sector-Specific Considerations

Public sector: Off-payroll rules apply regardless of client size; CEST evidence retention is audited as part of the Public Sector Internal Audit Standards.

Engineering and IT consultancies: Statement-of-work commercial models require careful drafting to genuinely transfer control.

Financial services: SMCR Certification Regime considerations interact with IR35, Senior Manager roles cannot generally be performed off-payroll.

What Policy Pros Delivers

Our Off-Payroll Working Policy package includes the main policy, a determination procedure mapped to CEST and HMRC guidance, an SDS template suite, a status-disagreement procedure, a contract-review checklist, an audit-ready evidence register, and a manager briefing on the 2024 set-off mechanism.

For the wider worker-status framework that sits behind IR35, including the multi-factor test used by tribunals, the recent case law direction of travel and the practical steps for reviewing contractor and consultant arrangements, see our contractor and worker status employer guide.