Written for independent consultants trading through their own companies, interim and fractional executives, and boutique consultancies that work with associates.
The short version
- Get the client's and group's size in writing.Group figures are added together, so a subsidiary of a medium or large group is generally medium or large too. Ask again each 6 April.
- Work out who makes the IR35 call.Small private client, or no UK connection: your company decides. Medium or large, or any public authority: the client issues a Status Determination Statement (SDS).
- Challenge an SDS you disagree with.Send the client the determination date, the facts you dispute and your evidence. It must reply within 45 days (As of Oct 2026).
IR35 asks whether you would be the client's employee if your company were not in the middle. What catches consultants is the machinery around that question: which chapter applies, who makes the call, who pays the tax and how to push back. Run the check on every new SOW, not once a year.
Step one: which chapter applies
- Small private client, or a client with no UK connection: Chapter 8.Your own company decides. If the engagement is inside, your company calculates a deemed payment on 5 April, with a flat 5% deduction for running costs. As of Oct 2026.
- Medium or large private client, or any public authority: Chapter 10.The client must give you a Status Determination Statement (SDS) with its conclusion and reasons, prepared with reasonable care. If it says inside, the fee-payer deducts income tax and employee NI from your payment and pays employer NI itself. Employer NI cannot be taken out of your agreed fee.
- Check the size properly.A company is small if it meets two of three limits. As of Oct 2026, for 2026 to 2027 most clients are still judged on the old limits: turnover of £10.2 million or less, balance sheet of £5.1 million or less, 50 employees or fewer. A client small only under the new, higher limits counts as small from 2027 to 2028 at the earliest.
- Look at the whole group.For a client in a group, the figures for every member are added together, so a subsidiary of a medium or large group is generally medium or large too. Get the client's size, and its group's, confirmed in writing, and ask again each 6 April.
If the group is medium or large, the client must issue the SDS, and the rules on who pays the tax follow from that.
Step two: test the contract and how you really work
Status turns on the whole picture, with no single factor winning: a genuine right to send a substitute, control in practice, financial risk, your own equipment and whether you run an independent business. HMRC's CEST tool gives HMRC's view, and binds HMRC only when the answers given to it are accurate.
Control and mutual obligation within one engagement
Each engagement is judged on its own: the obligations inside a single SOW can be enough for the mutual obligation test, even if the client never promises you more work. Control means the client's right to direct you under the contract, not only whether anyone supervises you day to day. The picture is built from your contracts and what both you and the client knew, not from the paperwork alone.
HMRC v Professional Game Match Officials Ltd [2024] UKSC 29; Atholl House [2022] EWCA Civ 501
How far back HMRC can go
HMRC can generally assess back four years, or six where an error was careless, so review a long-running engagement now. As of Oct 2026.
TMA 1970 ss.34 and 36
Step three: know what inside does to your take-home
| Income tax deducted by the fee-payer | £45,603 |
| Employee NI deducted by the fee-payer | £4,650.60 |
| Your company's running costs, with no Corporation Tax relief in practice | £1,100 |
| In your hand | £80,646.40 |
| £600 a day for 220 days | £132,000 |
| Extra in hand inside IR35, at the same day rate | £2,423.88 |
£80,646.40 inside minus £78,222.52 outside, and outside also leaves £2,457.96 in the company, so on these assumptions the two are close. Inside comes out ahead here because the fee-payer pays £19,050 of employer NI on top of the same day rate, so agree the rate knowing who carries that cost.Indicative worked example, as of Oct 2026: England, 2026 to 2027 rates, no pension, student loan or other income. Outside assumes a £12,570 salary and dividends. Through an umbrella, which takes its own employer NI, levy and fee from the same £132,000, the worked figure is £73,870.82. Compare the actual rates offered inside and outside, and have your accountant rerun it.
Travel to a client site
Home to a temporary workplace is deductible, but a client site stops being temporary once you expect to spend 40% or more of your working time there for more than 24 months. On an engagement inside IR35, under Chapter 8 or 10, home-to-site travel is not deductible at all. As of Oct 2026.
ITEPA s.339(5) and s.339A
If you disagree with an SDS
The client must answer a disagreement within 45 days
Send the client your disagreement with the determination date, the facts you dispute and your evidence. It must reply within 45 days, either with reasons or with a fresh SDS; from day 46 it becomes the fee-payer until it answers. Until a valid SDS is given, or if a party fails to pass it down the chain, that party carries the fee-payer liability. As of Oct 2026.
ITEPA ss.61N, 61NA and 61T
If you take a fractional director role, the board seat itself is an office: the fees for the office fall within IR35 whatever your working practices (ITEPA ss.49 and 61M). Put any separate project work on its own SOW, and diarise day 45 the moment you send a disagreement.
Asked in Greymill
The reason: a group's figures are added together, so a subsidiary of a medium or large group is generally medium or large too.
The size test (As of Oct 2026): a company is small if it meets two of three limits. For 2026 to 2027 most clients are still judged on these:
turnover of £10.2 million or less
balance sheet of £5.1 million or less
50 employees or fewer
Use the group's totals, not the 30 staff you see.
If it is medium or large, the client makes the call and must give you a Status Determination Statement (SDS) with its reasons.
Before you start: get the client's size, and its group's, in writing. Ask again each 6 April.
Shall I draft the email asking for both?
Ask it about your own business
Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.
I run a consulting business in the UK. I trade through my own company. A new client, [client name], wants me for [length of engagement] at [day rate]. What I know about its size and group is [details]. Here is the draft SOW and how I will actually work: [paste]. Tell me whether Chapter 8 or Chapter 10 applies, what points inside or outside, and what my take-home looks like each way at my numbers.
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Open the interactive lesson · Every consulting and advisory lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- ss.50 and 54 (IR35: chapter 8 or chapter 10, and who decides)
- ERA 1996 s.230; Uber BV v Aslam [2021] UKSC 5 (IR35: chapter 8 or chapter 10, and who decides)
- ss.61K, 61L, 61M (The small-client test, groups and timing)
- ESM10006 to ESM10008; CA 2006 s.382 as amended by SI 2024/1303 (The small-client test, groups and timing)
- s.60A; CA 2006 s.383; HMRC ESM10007 to ESM10009 (The small-client test, groups and timing)
- ESM10007, first paragraph and acquired-company rule (The small-client test, groups and timing)
- CA 2006 s.383(1) to (4) (two of three, aggregate, net or gross) (The small-client test, groups and timing)
- ss.61NA and 61N (The SDS, the fee-payer and the 45-day disagreement)
- s.61Q (The SDS, the fee-payer and the 45-day disagreement)
- ESM10037 trigger events; ESM10038 conditions, included and excluded amounts (The SDS, the fee-payer and the 45-day disagreement)
- ESM10000 onwards (off-payroll chain) (The SDS, the fee-payer and the 45-day disagreement)
- 515C to 516A, personal service, control and other provisions consistent with a contract of service (Status tests and the cases that decide them)
- Nolan LJ at 216, approving the qualitative appreciation of the whole rather than a mechanical checklist (Status tests and the cases that decide them)
- [2024] UKSC 29 (Status tests and the cases that decide them)
- [2022] EWCA Civ 501 (Status tests and the cases that decide them)
- s.49(1)(c); s.61M (Office holders, fractional directors, agencies and umbrellas)
- CA 2006 ss.171 to 177; IA 1986 s.214 (Office holders, fractional directors, agencies and umbrellas)
- reg 32(9) (Office holders, fractional directors, agencies and umbrellas)
- ITEPA 2003 Part 2 Chapter 11; ESM2405 onwards (Office holders, fractional directors, agencies and umbrellas)
- s.339A (Expenses and VAT for consultants)
- Notice 733 sections 4 and 2 (Expenses and VAT for consultants)
- VATA 1994 ss.7A and 8 (Expenses and VAT for consultants)
- eligibility (Expenses and VAT for consultants)
- MPC dates (The calendar: corporation tax, payroll, VAT and off-payroll)
- payment and filing (The calendar: corporation tax, payroll, VAT and off-payroll)
- deadlines (The calendar: corporation tax, payroll, VAT and off-payroll)
- update deadlines (The calendar: corporation tax, payroll, VAT and off-payroll)
- s.61T(3) to (5) (Deliverables in house style)