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IR35 for Contract Engineers: A Hiring Guide

If you are about to bring in a contract developer, DevOps engineer or data engineer, IR35 is probably not the part of the brief you enjoy. It is, though, the part that can cause the most avoidable trouble after the contractor has started. This guide explains, in plain English, what the off-payroll working rules (commonly called IR35) mean for the company engaging the engineer, and what to settle before anyone is shortlisted.

This is general information, not tax or legal advice. Rules and thresholds change, so check current guidance on GOV.UK and take professional advice for your own circumstances.

Why IR35 lands on the hiring side

IR35 exists to tackle "disguised employment": someone who works like an employee but is engaged through their own limited company (a personal service company, or PSC) so that tax and National Insurance are treated differently.

For engagements with public sector clients and with medium and large private sector clients, the responsibility for deciding whether the rules apply sits with the end client, meaning the business the engineer actually works for. It does not sit with the contractor, and it does not sit with the agency. If the assessment is wrong, the consequences can fall on the client or on others in the supply chain, rather than on the individual alone. GOV.UK explains the rules in its guidance on off-payroll working for clients.

Whether you are in scope of these client-side duties depends partly on the size of your organisation, and small companies are treated differently. HMRC's guidance sets the medium or large thresholds that apply for financial years beginning on or after 6 April 2025 as turnover of more than £15 million and a balance sheet total of more than £7.5 million, with the 50-employee limit unchanged (HMRC Employment Status Manual, ESM10006A). How these tests apply to your company and group is worth confirming with your accountant.

Who decides status, and when

In practical terms, the sequence for a medium or large client looks like this:

1. Decide status before the engagement starts. This should be a considered assessment of the specific role and working arrangement, not a blanket policy applied to every contractor.
2. Issue a status determination statement (SDS). This sets out the decision (inside or outside IR35) and the reasons for it. It goes to the contractor and to the party you contract with, which is often an agency.
3. Use reasonable care. Using a tool such as HMRC's Check Employment Status for Tax (CEST) can help, but the answers depend on accurate inputs about how the work really happens.
4. Have a process for disagreement. If the contractor challenges the decision, HMRC's guidance says the client must respond within 45 calendar days of receiving the representations (ESM10015).

The key point is timing. A determination made after the contractor has already started, or copied from a template without thought, is the sort of shortcut that creates problems later.

What a status determination statement needs

A useful SDS is specific. It should refer to the actual role, name the factors you considered, and explain how they led to the conclusion. "Outside IR35 because the contractor has a limited company" is not a reason. The factors usually discussed are:

• Control: how much say the client has over what is done, how, when and where.
• Substitution: whether the contractor can genuinely send someone else to do the work, and whether the client would accept it.
• Mutual obligation: whether the client must offer work and the individual must accept it, beyond the terms of the contract.
• Other factors: such as financial risk, provision of equipment, and how integrated the person is in the organisation.

The contract matters, but so does reality. If the written terms say one thing and day-to-day working says another, the day-to-day working is likely to carry weight.

How engineering work tends to look under IR35

Every case is different, and none of the following is a determination. But engineering roles often raise the same questions:

• Embedded team member. A contractor in your stand-ups, on your rota, taking tickets from your backlog, managed by your engineering manager and working set hours is showing signs that usually point towards employment-like control. That is common in "extra pair of hands" backfill.
• Defined deliverable. A contractor engaged to deliver a specific outcome, such as a migration, an integration or a test automation framework, with freedom over how it is built and genuine ability to substitute, may present a different picture. The reality must match the paper.
• On-call and support. Being required to join an on-call rota alongside permanent staff is one of the details worth examining closely rather than assuming.
• Tools and environment. Using your repositories and cloud accounts is normal for security reasons and not decisive on its own, but it forms part of the overall picture.

The practical lesson: write the role as it will really operate. If a manager's plan for the engineer does not match the contract, resolve that before the engagement, not after.

A pre-shortlist checklist for contract engineering roles

Before you ask for CVs, agree internally:

• Is this role a project deliverable or capacity backfill?
• Who will manage the engineer day to day, and how much direction will they give?
• Is a substitute realistic, and would you accept one?
• Which clients, teams and systems will they work with, and for how long?
• Who in your business signs off the SDS, and what is the disagreement process?
• Does the contract wording reflect how the work will actually be run?

Having these answers lets a recruiter brief candidates accurately, and stops the conversation stalling at offer stage.

How Axiom handles IR35 on contract roles

At Axiom, the IR35 determination for a contract role is one of the checks completed before candidates reach interview, and it is a blocking check, so a contract role does not proceed without it. It sits alongside right to work and visa status, a structured technical rubric assessment and two references. Where the client is responsible for the status decision, it remains the client's decision: we make sure it is in place before anyone is put forward.

FAQ

Is IR35 the contractor's responsibility or the client's?

For public sector and many medium and large private sector engagements, the client is responsible for deciding status and issuing the SDS. Small companies are treated differently. Check the current rules for your organisation.

Can we apply one status to all our contract engineers?

Blanket decisions are risky. Status depends on the individual role and how it operates, so similar job titles can lead to different outcomes.

Does a limited company contractor mean the role is outside IR35?

No. Using a limited company is the situation IR35 is designed to assess. The outcome depends on the working arrangement.

Does a recruiter make the IR35 decision for us?

The decision responsibility generally rests with the end client, though agencies play a role in passing the SDS along the chain. Take professional advice on your own position.

Hiring a contract engineer?

Tell us the role, how it will run day to day and how long you need it. We will check the IR35 position is settled before anyone is put forward, then shortlist candidates assessed on what they can actually do. Hire through Axiom to start the conversation.