IR35 guide
IR35 and independent recruitment consultants: what you need to know.
IR35 is one of the most misunderstood areas of self-employment tax. Here’s a plain-English explanation of what it is, who it applies to, and what it means for recruitment consultants working independently.
General information only
This page provides general information about IR35 and how it typically applies to independent recruitment consultants. It is not legal or tax advice. IR35 is a complex area and the rules are applied to specific facts. Always speak to a qualified accountant or employment tax adviser about your specific situation before making decisions.
The basics
IR35 explained simply.
IR35 is a set of HMRC rules designed to prevent tax avoidance by people who work in a way that’s effectively the same as employment, but who are structured as self-employed to reduce their tax bill.
The rules were introduced in 2000 (IR35 was the reference number of the original Inland Revenue document; the name stuck). They’ve been updated significantly since then, most recently through the Off-Payroll Working rules that took effect from April 2021.
Why it matters: If HMRC decides that a self-employed working arrangement falls inside IR35, the worker has to pay Income Tax and National Insurance as if they were an employee, but without the employment rights that come with employment. The tax bill can be significant, and HMRC can pursue unpaid tax retrospectively.
For many consultants considering independence, the question “am I going to fall inside IR35?” is one of the first things they ask. The answer depends on the specific nature of your working arrangements, not your registered self-employment status.
Who it affects
When does IR35 actually apply to recruiters?
IR35 in its most complex form applies to people working through a personal service company (a limited company set up specifically to provide the individual’s services) who work on a long-term basis for a single end client under that client’s direction and control. For more on what going independent involves, see our full guide.
Independent recruitment consultants typically look very different from this. You are:
- Working with multiple clients simultaneously
- Sourcing and managing your own candidates
- Operating with significant autonomy over how you do your work
- Not integrated into a single client’s organisational structure
This profile is materially different from the typical IR35 case, which is why many independent recruitment consultants operate outside IR35.
That said, the rules are specific and the devil is in the detail. If you run a contract desk, the IR35 status of your contractors is also a consideration alongside your own. This is worth understanding separately.
How HMRC assesses IR35
The three things HMRC looks at.
HMRC uses three primary tests to assess whether a working arrangement falls inside or outside IR35. These tests apply to the actual working relationship, not just the contractual terms.
Substitution
Can you send someone else to do your work? If you have a genuine right of substitution, this points toward self-employment. For an independent recruitment consultant managing your own clients and candidates, the substitution position is generally favourable: you are the business, running your own relationships.
Control
Does the client control how you work, or just the outcomes? An employee is typically told not just what to do, but how and when to do it. As an independent recruitment consultant, you control how you source candidates, how you manage client relationships, and how you structure your time. No single client is directing your working day.
Mutuality of obligation
Is there an ongoing obligation to offer work and to accept it? Employment typically involves an obligation on the employer to provide work and the employee to accept it. An independent consultant working across multiple clients, on different engagements, at their own direction, typically has no mutuality of obligation with any individual client.
Your position
How the Unknown Potential model relates to IR35.
Working through Unknown Potential, you operate as a self-employed independent contractor. The platform is the framework through which you manage your billing, invoicing, and compliance, but you work autonomously across your own client base.
You are not working for a single end client under their direction and control. You are sourcing and managing multiple client relationships, operating under your own judgement, and working across multiple assignments simultaneously. This structure is consistent with self-employment rather than disguised employment.
For your contract placements: If you run a contract desk, your contractors’ IR35 status is a separate question from yours. Since April 2021, the responsibility for determining the IR35 status of contractors who work through a company sits with the end client (for medium and large businesses). The platform’s compliance workflow supports proper documentation of IR35 assessments on contract placements.
Important caveat: IR35 is a complex area of tax law and the rules are applied to specific facts. Everything on this page cannot substitute for professional advice about your specific situation. If you’re in any doubt about your IR35 position, speak to an accountant or employment tax adviser who specialises in contractor tax.
Next steps on IR35
IR35 is worth getting right. Here’s who to speak to.
Everything on this page is general information. It’s designed to give you a working understanding of what IR35 is and how it typically applies to independent recruitment consultants. It is not legal advice or tax advice, and it should not be treated as such.
Before making the move to independence, we’d encourage you to speak to a qualified accountant or employment tax adviser about your specific circumstances. A short consultation with someone who specialises in contractor and self-employment tax is not expensive relative to the potential cost of getting it wrong.
What to ask them:
- Given my specific working arrangements as an independent recruitment consultant, what is my IR35 position?
- If I run a contract desk, what are my obligations regarding IR35 assessment for my contractors?
- Are there any steps I should take to document my working arrangements clearly?
We have preferred suppliers who work with consultants in exactly this position and are happy to make introductions. See also our tax guide for independent consultants.
Questions we hear often
IR35: the questions consultants ask most.
Do I need a limited company to work independently?
No. You do not need a limited company. You can operate as a self-employed sole trader. IR35 in its most complex form applies primarily to people working through personal service companies (limited companies). Operating as a sole trader removes some of the IR35 complexity, though the underlying tests about the nature of your work still apply.
If I set up a limited company, does that mean I’m inside IR35?
No. Having a limited company does not automatically place you inside IR35. What matters is the nature of your actual working arrangements. Many people with limited companies operate well outside IR35 because their working arrangements are genuinely self-employed.
What if my biggest client thinks I’m inside IR35?
Since April 2021, medium and large end clients are responsible for determining IR35 status for contractors. If a client decides that a contractor arrangement falls inside IR35, they are required to apply PAYE to the contractor’s payments. This affects contractors placed through recruitment consultants, not typically the recruitment consultants themselves.
I’ve heard IR35 is a minefield. Should I be worried?
The honest answer: for most independent recruitment consultants, IR35 is not the risk it seems. The legislation was designed to tackle disguised employment, not genuine self-employment. An independent consultant running their own multi-client recruitment business does not look like the pattern IR35 was designed to catch. But we’d still recommend getting specific advice before making the move.
What documentation should I keep?
Good practice includes maintaining records that demonstrate the self-employed nature of your work: confirmation that you work across multiple clients, records of client engagements, documentation that you control your own time and working methods. The Unknown Potential platform’s compliance workflow supports good record-keeping as a default.
Can IR35 status change over time?
Yes. IR35 status is assessed on the facts of each engagement. If your working arrangements change significantly (for example, if you come to work almost exclusively for one end client over a long period), the position may change. Keep an eye on the nature of your work and take advice if something changes.
Still have questions?
The best way to understand your specific position is a conversation.
IR35 is one of those areas where general guidance only gets you so far. If you have specific questions about your situation, the quickest route is either a conversation with Unknown Potential or a conversation with a specialist accountant. We’re happy to do both, in either order.