Who Bears Responsibility for IR35 Status Under Off-Payroll Rules

Who Is Responsible for IR35 Status Under the Off-Payroll Rules

If you operate through a personal service company (PSC), understanding where IR35 responsibility sits is not optional. Getting it wrong can mean an unexpected tax bill, penalties, and a dispute that takes months to resolve. This guide explains who owns each obligation in the off-payroll chain and what that means for you as a contractor.

A Brief Recap of the Off-Payroll Rules

The off-payroll working rules, commonly called IR35, were extended to medium and large private-sector engagers in April 2021, following an earlier rollout in the public sector in 2017. Before April 2021, contractors inside the private sector were responsible for assessing their own IR35 status. That changed fundamentally.

The rules are set out in Chapter 10 of ITEPA 2003 and administered by HMRC. The starting point is that any medium or large end client engaging a worker through a PSC must assess the worker's IR35 status before the engagement begins.

Small companies (as defined by the Companies Act 2006) are exempt from the rules, so if your end client qualifies as a small business, IR35 responsibility falls back to your own PSC.

The End Client's Duty: The Status Determination Statement

For medium and large engagers, the end client must produce a Status Determination Statement (SDS). This is a written determination that sets out:

• Whether the engagement is inside or outside IR35 in the client's view
• The reasons supporting that conclusion

The SDS must be passed down the supply chain to the worker and, where relevant, to the fee-payer. The end client cannot simply file it away internally.

IR35 responsibility for making the determination rests legally with the end client. When a listing on this platform states that a role is outside IR35, that claim belongs to the end client, not to this platform. We have no authority to make or endorse that assessment.

If an end client fails to produce an SDS, or produces one without taking reasonable care, HMRC's guidance makes clear that IR35 responsibility and any resulting tax liability can sit with the end client directly, rather than travelling down the chain.

The Fee-Payer's Role

Once a valid SDS has been issued, the obligation to operate PAYE and deduct National Insurance Contributions (NICs) where a role is deemed inside IR35 falls to the fee-payer. The fee-payer is the party closest to the PSC in the supply chain, typically a recruitment agency.

Key fee-payer obligations include:

• Receiving and retaining the SDS from the end client
• Deducting Income Tax and NICs at source if the engagement is inside IR35
• Paying the relevant amounts to HMRC

If there is no agency in the chain and the end client pays the PSC directly, the end client is also the fee-payer and holds both sets of obligations.

The fee-payer's liability is conditional on receiving a valid SDS. If the end client has not provided one, the HMRC guidance explains that liability can remain with the end client rather than moving to the fee-payer.

The Contractor's Position

Contractors no longer carry the primary IR35 responsibility in medium and large engagements. However, that does not mean you should be passive. There are several practical points to consider.

Request the SDS. You are legally entitled to receive it. If a client or agency cannot produce one, that is a significant concern.

Use your right to challenge. The off-payroll rules include a client-led disagreement process. If you believe the client's determination is wrong, you can formally dispute it. The end client must respond within 45 days and, if they do not change the determination, must give reasons.

Do not rely on CEST alone. HMRC's Check Employment Status for Tax tool can be useful, but HMRC's own position is that CEST results are not determinative. A CEST result is not an SDS, and it does not override a proper legal assessment.

Consider the contract and working practices. IR35 status is determined by the reality of the engagement, not just the wording of the contract. Substitution rights and the degree of control exercised by the end client are among the most important factors following the Supreme Court's reasoning in PGMOL. Whether a genuine right of substitution exists, and whether the end client can direct how, when, and where you work, will weigh heavily in any assessment.

Small-Company Exemptions: A Different Picture

Where an end client qualifies as a small company under the Companies Act 2006, the old rules apply and your PSC remains responsible for its own IR35 determination. You should still assess your status carefully and keep records. HMRC can enquire into historic PSC returns, and the burden of demonstrating compliance rests with you.

What Happens When Things Go Wrong

HMRC can recover unpaid PAYE and NICs from whichever party in the chain failed its obligations. If an end client issued a careless SDS, it may find itself liable. If a fee-payer failed to deduct correctly despite holding a valid SDS, HMRC will pursue the fee-payer. In limited circumstances, liability can transfer up the chain where a party has failed to meet its duties.

The Fair Work Agency (FWA) has broader oversight of worker rights issues, but tax compliance under the off-payroll rules sits squarely with HMRC.

Summary: Who Holds What

| Party | Primary Obligation |

|---|---|

| End client (medium/large) | Issue the SDS; take reasonable care in the determination |

| Fee-payer | Operate PAYE and NICs if inside IR35 |

| Contractor's PSC | Challenge if the SDS is wrong; self-assess if small-company exemption applies |

Understanding the chain matters whether you are reviewing a new contract or disputing a determination that, in your view, does not reflect the reality of how you work.

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.