Is IR35 Still an Enforcement Priority?
IR35 enforcement remains firmly on HMRC’s agenda, and businesses that assumed the off-payroll rules had settled into routine are mistaken. HMRC has modelled an annual tax loss of around £20 million linked to changes in business-size classification that shift off-payroll (IR35) status responsibilities between parties. Where the Exchequer identifies leakage, enforcement activity follows.
For recruiters and end clients, the message is clear: the off-payroll rules are not dormant, and the burden of proving compliant status decisions still sits with the party making them.
What Do the Business-Size Changes Mean?
Under the off-payroll working rules, responsibility for determining a contractor’s IR35 status — and for the associated PAYE where the engagement is “inside” IR35 — depends in part on whether the client qualifies as a small business. When a company’s size classification changes, that responsibility can move between the client, the agency and the worker’s own company.
HMRC’s modelling of a £20 million annual loss reflects the friction created when those responsibilities shift and determinations are not made correctly. In practice this creates two risks:
- Wrong-party risk — the obligation to assess status moves, but no one updates their processes.
- Wrong-outcome risk — status determinations are made without adequate care, exposing the fee-payer to unpaid tax, interest and penalties.
How Does IR35 Interact With Umbrella Reform?
IR35 and the 6 April 2026 umbrella PAYE changes are separate regimes, but they point in the same direction: HMRC is systematically relocating tax accountability to solvent, identifiable parties in the labour supply chain. An agency that has cleaned up its umbrella arrangements but neglected its IR35 processes has closed one exposure and left another open.
Both regimes reward the same behaviour — documented, evidence-based compliance and clean supply chains. Treating them in isolation is a mistake.
What Compliance Evidence Should You Hold?
Authoritative IR35 compliance rests on records you can produce if HMRC asks. FCSA recommends that clients and agencies maintain:
- Status determination statements (SDS) for every relevant engagement, with the reasoning documented, not just the outcome.
- Reasonable care evidence — proof that determinations were made with genuine assessment, not blanket rules applied across whole workforces.
- A working dispute process so that contractors can challenge a determination and the challenge is logged and answered.
- Contract-versus-practice records demonstrating that written terms reflect how the engagement actually operates.
- Audit-ready storage so that evidence survives staff changes and system migrations.
Why “Reasonable Care” Is the Deciding Factor
If a client fails to take reasonable care in making a status determination, the liability for unpaid tax can transfer back to that client even where an agency is the fee-payer. Reasonable care is not a box-tick; it is the standard HMRC applies when deciding who pays. Evidence of a robust, consistent process is the single most valuable thing a business can hold in an enquiry.
FCSA’s Position
IR35 enforcement has not gone away, and HMRC’s own figures show it is actively quantifying where tax is being lost. The businesses that fare best in an enquiry are those that can produce clear, contemporaneous evidence that status was assessed with care and supply chains were kept clean.
FCSA’s standard is built on exactly that principle — verifiable compliance rather than assurance by assertion. Recruiters and end clients seeking to reduce IR35 and wider supply-chain exposure should work with independently assessed providers listed on the FCSA Members register and treat compliance evidence as a permanent operational discipline.
