IR35 checks are a critical part of compliance for contractors, end clients, and recruitment agencies in the UK. Introduced to prevent disguised employment, IR35 legislation determines whether a contractor should be taxed as an employee or as a genuine independent business. However, carrying out IR35 checks correctly is complex, and mistakes are common. These errors can lead to HMRC penalties, backdated tax liabilities, and damaged working relationships. Understanding the most common mistakes made during IR35 checks and how to avoid them is essential for staying compliant.

Failing to Understand the Purpose of IR35 Checks

One of the most fundamental mistakes is misunderstanding what IR35 checks are designed to do. IR35 checks are not about tax efficiency or cost-saving but about assessing the true nature of the working relationship.

Many businesses focus only on the contract wording rather than how the contractor actually works day to day. To avoid this mistake, organisations must assess both contractual terms and real working practices to reach a fair and accurate determination.

Relying Solely on Contract Wording

Contracts are important, but they are not the only factor HMRC considers. A common mistake is assuming that a well-written contract automatically places a contractor outside IR35.

HMRC looks beyond paperwork and examines how the role operates in practice. Control, substitution, and mutuality of obligation must reflect reality. Regular reviews of working practices help ensure contracts remain aligned with actual arrangements.

Blanket IR35 Determinations

Many end clients adopt a blanket approach by classifying all contractors as inside IR35 to reduce perceived risk. While this may seem like a safe option, HMRC does not consider blanket determinations to demonstrate reasonable care.

This approach can lead to disputes, loss of skilled contractors, and reputational damage. Each role must be assessed individually to avoid this mistake.

Not Taking Reasonable Care

HMRC requires end clients to take reasonable care when conducting IR35 checks. Failing to do so can transfer tax liability back to the client.

Reasonable care includes using accurate information, understanding the role, and applying consistent assessment methods. Businesses should document their decision-making process and retain evidence to support their determinations.

Incorrect Use of CEST

HMRC’s Check Employment Status for Tax tool is commonly used for IR35 checks, but it is often misused. Providing incomplete or inaccurate information to CEST leads to unreliable results.

To avoid this, businesses should ensure the person completing the tool understands the role fully and answers questions honestly based on actual working practices rather than desired outcomes.

Ignoring Working Practices

IR35 checks often fail because businesses assess contracts but ignore how the contractor operates in reality. Factors such as supervision, direction, control, and substitution must reflect day-to-day working arrangements.

If working practices change over time, IR35 status may also change. Regular reviews help ensure ongoing compliance.

Poor Understanding of Key IR35 Tests

Another common mistake is misunderstanding key IR35 tests such as control, substitution, and mutuality of obligation.

For example, assuming a substitution clause automatically means outside IR35 is incorrect if substitution is never allowed in practice. Proper understanding and application of these tests is essential.

Failing to Issue a Status Determination Statement Correctly

End clients are required to issue a Status Determination Statement outlining the IR35 decision and the reasons behind it. Failing to provide this statement or giving insufficient detail is a compliance failure.

Clear and well-documented statements help demonstrate reasonable care and reduce disputes.

No Dispute Resolution Process

Contractors have the right to challenge IR35 determinations. A common mistake is failing to establish a clear process for handling these challenges.

End clients must respond to disputes within the required timeframe and review determinations fairly. Transparent processes help maintain trust and compliance.

Treating Small Company Exemptions Incorrectly

Some businesses misunderstand the small company exemption. Only small private sector businesses are exempt from the off-payroll working rules.

Incorrectly assuming exemption can lead to non-compliance. Businesses should confirm their size status annually to ensure they are meeting their obligations.

Lack of Communication Across the Supply Chain

IR35 checks involve contractors, agencies, and end clients. Poor communication between these parties often leads to confusion and errors.

Clear communication ensures everyone understands the IR35 determination, payroll arrangements, and responsibilities.

Choosing Non-Compliant Payroll Solutions

After an inside IR35 determination, some contractors are pushed towards non-compliant payment schemes promising higher take-home pay. These arrangements can expose contractors and clients to serious risk.

Using compliant solutions such as umbrella payroll helps avoid this mistake. Providers like The Infinity Group focus on PAYE compliance and transparent payroll processes.

Failing to Keep Records

HMRC may review IR35 determinations years after they are made. Poor record keeping makes it difficult to demonstrate reasonable care.

Businesses should retain contracts, CEST outputs, working practice assessments, and Status Determination Statements to support their decisions.

Not Seeking Professional Support

IR35 legislation is complex, and trying to manage checks without proper expertise is a common mistake. Relying on assumptions or outdated knowledge increases risk.

Professional support ensures assessments are accurate and compliant. The Infinity Group provides guidance and payroll solutions that support IR35 compliance for contractors and businesses.

Impact of Mistakes on Contractors

Incorrect IR35 checks can result in reduced income, unexpected tax bills, and limited contract opportunities for contractors. Disputes can damage relationships with clients and agencies.

Accurate assessments protect contractors from unnecessary financial and professional risk.

Impact of Mistakes on End Clients

For end clients, IR35 mistakes can lead to significant tax liabilities, penalties, and reputational damage. They may also struggle to attract skilled contractors if determinations are perceived as unfair.

Getting IR35 checks right supports compliance and workforce stability.

Best Practices to Avoid IR35 Mistakes

To avoid common IR35 check mistakes, businesses should assess roles individually, understand working practices, document decisions, and review determinations regularly.

Using compliant payroll solutions and seeking expert support further reduces risk.

The Role of The Infinity Group in Supporting IR35 Compliance

The Infinity Group supports contractors, agencies, and end clients with IR35-related guidance and compliant payroll solutions. Their expertise helps ensure IR35 checks are applied correctly and supported by transparent processes.

By working with The Infinity Group, businesses can reduce risk and improve confidence in their IR35 approach.

Conclusion

Common mistakes made during IR35 checks include relying solely on contracts, using blanket determinations, misunderstanding key tests, and failing to document decisions. These errors can have serious consequences for contractors and end clients alike.

By understanding how to avoid these mistakes and by working with experienced providers such as The Infinity Group, UK businesses and contractors can carry out IR35 checks accurately, demonstrate compliance, and reduce the risk of HMRC penalties in an increasingly regulated contracting environment.