Guide - Helen Forsyth, Fractional CCO
The off-payroll working rules are the first thing a finance director asks about and the last thing most fractional websites explain. Here is how they work, who carries the risk, and what changes from April 2026.
The short answer
I work outside IR35. I am responsible for my own tax, National Insurance and pension, so a client carries none of the employment overhead of a senior hire - no employer NI, no pension contribution, no holiday or sick pay, no benefits.
Whether any given engagement sits inside or outside the rules is determined per engagement, on how the working relationship actually operates - not by the job title, not by the invoice, and not by what the contract claims.
Who makes that determination depends on the size of the client. If your company qualifies as small, the contractor’s own limited company determines its status and carries the liability. If your company is medium or large, you determine it and issue a Status Determination Statement.
This page is general information about how the rules are structured, written by a commercial adviser rather than a tax adviser. It is not tax advice and it is not a substitute for it. Status depends on the facts of each engagement, and you should take professional advice on your own position.
Part 01
IR35 - formally the off-payroll working rules - exists to answer one question: if you stripped away the limited company sitting between the worker and the client, would this look like employment?
If the answer is yes, the engagement is “inside IR35” and income tax and National Insurance apply as though it were employment. If no, it is “outside IR35” and the contractor’s company is taxed as a business.
Two things it is not:
Note also that IR35 does not apply to sole traders - employment status for tax there is assessed under different rules. It applies where services are supplied through an intermediary, most commonly a personal service company.
Part 02
This is the part that catches finance teams out, because the answer reversed for the private sector in April 2021 and then only for some companies.
| Client size | Who determines status | Who carries the liability | Rules |
|---|---|---|---|
| Small | The contractor’s own limited company | The contractor’s company | Chapter 8, ITEPA 2003 |
| Medium or large | The client (end user of the services) | The fee-payer, usually the client | Chapter 10, ITEPA 2003 |
| Any public sector body | The client | The fee-payer | Chapter 10, ITEPA 2003 |
If you are a small company, there is genuinely nothing for you to do beyond contracting properly: the determination and the risk sit with the contractor. Most startups and a great many established SMEs fall here.
If you are medium or large, you must take reasonable care to determine status, issue a Status Determination Statement to the contractor, and operate a disagreement process. Blanket determinations applied across all contractors without considering the individual engagement are specifically not reasonable care.
One point in clients’ favour that is often missed: since April 2024, where an engagement is later found to have been wrongly determined as outside IR35, HMRC can offset tax and NIC already paid by the contractor and their company against the client’s liability. It does not remove the risk, but it removes the double-counting that made the original exposure look catastrophic.
Part 03
“Small” is not a judgement call. It uses the Companies Act 2006 definition, and you qualify by meeting at least two of three conditions. Those thresholds rise for financial years beginning on or after 6 April 2026.
| Condition | Current | From 6 April 2026 |
|---|---|---|
| Annual turnover | Not more than £10.2M | Not more than £15M |
| Balance sheet total | Not more than £5.1M | Not more than £7.5M |
| Average employees | Not more than 50 | Not more than 50 |
| How many must be met | Any two of the three | Any two of the three |
The effect is that a further tranche of mid-sized companies - the government’s own figure is around 14,000 - move back out of scope and no longer have to determine status for their contractors.
Be careful with the date. Company size is assessed against completed financial years, and there are separate two-year consistency conditions for companies moving between categories. Commentators genuinely disagree about when the change bites in practice, with several putting the real-world effect at April 2027 or later depending on your year end. Confirm your own position with your accountant rather than assuming the headline date applies to you.
Two further wrinkles worth knowing: the test applies differently to groups, where the parent’s aggregated figures can matter, and unincorporated clients are assessed on turnover alone.
Part 04
Status turns on the substance of the relationship. The three classic tests come from case law, and the business-on-own-account factors sit alongside them.
Does the client direct how the work is done, or contract for an outcome? A fractional CCO brought in to design and prove a commercial model decides the method. Being told which hours to be at a desk, and how to do the job, points the other way.
Could the work be delivered by someone else the contractor provides? This is genuinely weaker for fractional executive roles - you are often engaged for your specific experience - so it should not be the test you lean on.
Is the client obliged to provide continuous work, and the contractor obliged to accept it? A defined 90-day plan with agreed outcomes is a project. An open-ended obligation to turn up and do whatever is needed looks like a job.
Multiple concurrent clients, own equipment, own insurance, own marketing, financial risk on delivery, no entitlement to employee benefits, no line management responsibility, not in the org chart. Individually weak, collectively significant.
Where fractional engagements get into trouble is usually drift: an arrangement that starts as a defined commercial project and slowly becomes a part-time job with a team reporting into it, a laptop, an internal email signature and a seat at the management meeting. The original contract does not change; the reality does.
HMRC’s CEST tool is the free first check, and using it with accurate inputs gives a client some protection. It is not the last word - it returns an undetermined outcome in a meaningful share of cases, and it does not weigh mutuality of obligation the way the tribunals do.
Part 05
Practical version, whatever your size:
Part 06
For the avoidance of a long contract-stage conversation, this is the shape of my engagements:
If your finance or legal team needs specific wording, evidence of insurance, or a determination discussion, raise it on the intro call. It is a five-minute conversation upfront and a tedious one at contract stage.
Repeating the important bit: this is general information, not tax advice. IR35 status is determined on the facts of each individual engagement, the rules change, and the dates on which changes take effect depend on your own financial year. Take advice from a qualified tax professional on your position.
Questions
Outside. I supply services through my own limited company, work with several clients concurrently, use my own equipment, and am responsible for my own tax, National Insurance and pension. Engagements are contracted around a 90-day plan with agreed outcomes rather than a commitment to hours.
Only if it does not qualify as small. Small companies are exempt, and the contractor’s own limited company determines status and carries the liability. Medium and large private sector companies, and all public sector bodies, must determine status themselves and issue a Status Determination Statement.
The Companies Act 2006 definition: you must meet at least two of three conditions - turnover not more than £10.2M, balance sheet total not more than £5.1M, and not more than 50 employees on average. For financial years beginning on or after 6 April 2026 the first two rise to £15M and £7.5M, with the employee count unchanged.
The stated date is for financial years beginning on or after 6 April 2026, but company size is assessed against completed financial years and there are two-year consistency conditions. That means the practical effect for many companies lands later - several commentators say April 2027 or beyond, depending on year end. Confirm with your accountant rather than relying on the headline date.
No. HMRC assesses how the engagement operates in practice, not what the paperwork asserts. A well-drafted contract helps, but if the working practices look like employment - direction over how the work is done, an open-ended obligation to provide and accept work, a place in the org chart - the working practices are what count.
No. Multiple concurrent clients is a strong business-on-own-account indicator and it matters, but status is determined per engagement. One relationship in a portfolio can sit inside the rules while the others sit outside, particularly if that one has drifted into something resembling a part-time job.
Yes, and it is a sensible first check - HMRC will stand behind a CEST outcome where the inputs were accurate and the working practices match. But it returns an undetermined result in a significant share of cases and does not weigh mutuality of obligation the way the tribunals do, so treat it as a starting point rather than a conclusion.
For a medium or large client, the fee-payer is generally liable for the unpaid tax and NIC, with penalties possible. Since April 2024, HMRC can offset tax and NIC already paid by the contractor and their company against that liability, which substantially reduces the exposure compared with the earlier position. This is exactly the kind of question to put to a tax adviser rather than a commercial one.
If your finance team needs the contractual side covered before a commercial conversation can happen, book a free 30-minute call and we will deal with it upfront rather than at contract stage.
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