Working Through a Recruitment Agency as an Outside-IR35 Contractor

Working through a recruitment agency as an outside-IR35 contractor

Many limited-company contractors don't contract directly with the end client. Instead, there's a recruitment agency in the middle, sourcing the role, agreeing terms, and often paying the PSC. If you're working (or considering working) an assignment that the client has said is outside IR35, it's worth understanding what the agency's role actually is, because it affects who is responsible for what if HMRC ever looks at the engagement.

Where the agency sits in the contract chain

HMRC's off-payroll working rules apply where a worker provides services through their own intermediary, usually a limited company or PSC, rather than being engaged directly as an individual.Understanding off-payroll working (IR35)

An "agency" for these purposes isn't limited to traditional recruitment consultancies. HMRC defines it as any party sitting in the contractual chain between the end client and the worker's intermediary.Off-payroll working rules for agencies That means a contract chain can include one agency, several agencies, or an agency plus a managed service provider, all sitting between the client that uses your services and your own PSC.

This matters because the off-payroll rules operate through that chain. The agency you signed your contract with may not be the same party responsible for tax and status decisions, and it's worth knowing which is which before you start.

Who does what: status, tax, and the fee-payer

Since the private and voluntary sector reforms took effect from 6 April 2021, the end client is responsible for assessing the worker's employment status. Separately, the client or the agency or third party that actually pays the PSC is responsible for accounting for employment taxes and National Insurance contributions if the rules apply to the engagement.HMRC issue briefing: supporting organisations to comply with changes to the off-payroll working rules (IR35)

In practice, that means:

• The client decides whether the engagement sits inside or outside the off-payroll rules, and should issue a Status Determination Statement (SDS) setting out that decision and the reasons for it.
• Any agency in the chain must work out whether it is the "fee-payer": the party that pays the PSC directly. If it is, and the rules apply, it must account for the relevant tax and NICs.Off-payroll working rules for agencies
• HMRC's guidance confirms agencies have these responsibilities specifically when supplying workers who aren't directly employed by them to public sector bodies, medium and large private sector clients, or another agency further along the chain.Off-payroll working rules for agencies

This chain of responsibility was originally established for the public sector from April 2017, when the legislation made the public sector body, agency, or other third party paying the PSC responsible for deciding whether the rules applied and, if so, for deducting and paying the tax.Off-payroll working in the public sector: changes to the intermediaries legislation The private sector rules from 2021 followed broadly the same logic.

What "the client states outside IR35" actually means

If a job listing or an agency tells you a contract is outside IR35, that is the client's stated position, reached (or intended to be reached) via its own status assessment and recorded on an SDS. It is not something this platform, the agency, or anyone else can verify or guarantee. Only the end client can make that determination for a given engagement, based on the actual working practices involved.

The rules exist, as HMRC puts it, to ensure that individuals who work like employees through a PSC or other intermediary pay broadly the same Income Tax and NICs as employees would.Important facts for contractors - off-payroll working rules (IR35) Whether a given engagement falls inside or outside that framework depends on the real substance of the relationship: chiefly, questions of substitution and the degree of control the client exercises over how, when, and where the work is done, principles that were reinforced by the Supreme Court's PGMOL judgment on mutuality of obligation and status. A CEST result, if one is run, is not determinative on its own; HMRC has confirmed CEST outcomes are one input, not the final word.

Questions worth asking before you sign

When an agency presents you with an outside-IR35 assignment, it's reasonable to ask:

• Who issued the SDS, and can I see the reasoning behind it, not just the conclusion?
• Which party in the contract chain is the fee-payer, and are they aware of that role?
• Does my contract's substitution and control clauses reflect how the work will actually be carried out, not just how it reads on paper?
• If the client is not medium or large-sized (and therefore may be a "small company" for these purposes), who is responsible for the status decision in that case?

An agency contract and an SDS are pieces of evidence the client and agency have provided about how they view the engagement. They are not a verification of your status, and they don't bind HMRC if the actual working practices tell a different story.

If you want to see how outside-IR35 roles are currently priced across different sectors and locations, our day-rate benchmarks are updated regularly, and you can browse outside-IR35 contracts currently listed on the board.

Getting proper input

Because status depends on the specific facts of each engagement, and because responsibilities can shift depending on where an agency sits in the contract chain, it is worth getting a contract reviewed by a specialist IR35 contract reviewer, and discussing your overall tax position with a contractor accountant. If you have concerns about employment rights within an agency arrangement, the Fair Work Agency is the relevant body for those matters, separate from HMRC's tax-focused off-payroll rules.

This platform does not determine, verify, or warrant IR35 status; the SDS is the client's legal responsibility. Contractors should take their own advice and consider IR35 insurance.