IR35 explained: Are you genuinely Self-Employed, or just employed in disguise?
By Glenn Bowen, Director, Grampian Accounting — August 2026
If you work through your own limited company — as most oil and gas contractors do — IR35 certainly applies to you and is vitally important to your contract. So it’s worth understanding what it’s actually testing, and what to do about it.
The short version
IR35 is a judgement based assessment, not a formula, about whether you’re genuinely self employed or in disguised employment. You want to be outside it, ie genuinely self employed, and the things that get you there are genuine control over your work, a real right of substitution, your own equipment, and not being treated as one of the client’s team.
Check who carries the liability — it matters regardless of if that’s you or your client. If it’s you, get your contract and working practices reviewed, and if you’re still not comfortable, insure the risk. If it’s your client then understand IR35 so you minimise the chance HMRC come along and you lose your contract position. For most contracts the cost of peace of mind is small against what an IR35 bill can look like.
The (Brief) Background
IR35 determines whether you’re genuinely self-employed or whether you’re really in disguised employment through a Limited Company. Get it wrong, and HMRC can come back for the equivalent tax you’d have paid as an employee — plus penalties.
IR35 exists because HMRC watched people leave PAYE on a Friday and come back the following Monday doing exactly the same role — same desk, same hours, same boss telling them what to do — but now through a limited company, paying a lot less tax.
Their view was that this wasn’t fair. Two people sitting side by side, doing the same job in the same way, treated the same by the same employer — but one of them walks away with a much better tax position purely because of how they’re paid. IR35 is the rule designed to catch that.
Inside or Outside — and why you want to be outside
The language trips people up, so let’s be clear. Being outside IR35 means you’re genuinely self-employed and the legislation doesn’t apply to you. That’s where you want to be. Being inside IR35 means HMRC deems you to be, in effect, an employee — and taxes you (or your client) accordingly.
The frustrating part is that there’s no single box you can tick to prove it. It’s a subjective judgement built up from a lot of separate factors, none of which is decisive on its own.
What actually matters – multiple contracts is not enough
These are some of the most important factors that build the picture. No single one settles it, but together they tell HMRC whether you look like a business or an employee.
Control — do you decide when, where and how you work? A genuine contractor typically has a job to complete and a number of hours to do it in, but real say over how they go about it. An employee is told. If you work from home, set your own pattern, and are measured on the work getting done rather than clocking in, that points outside. Many of our contractors work on rigs or in offices – this doesn’t mean this point is lost – it depends how you carry out your work.
Substitution — does it have to be you? This is one of the strongest tests, and it hinges on what your contract says. Is it a contract for you personally to do the work, or a contract with your business to deliver it? If, in principle, you could send someone else competent to do the job — or subcontract it — and the client would have to accept that as long as the work got done, that points strongly to you being a genuine business rather than an employee.
Equipment — whose tools are you using? Turning up and using your own kit looks like a business. Being handed everything by the client looks more like employment.
How you’re treated in the office — are you one of the team? This is the one that quietly catches people. If you’re in the team meetings, getting appraisals, booking holiday, being paid when you’re off sick — you’re being treated like an employee.
None of these alone makes you inside or outside. It’s the weight of them together.
What getting it wrong looks like
I’m not here to scaremonger. HMRC’s capacity to chase IR35 cases has arguably diminished over the last decade. So this isn’t a reason to lie awake at night – it’s important we get it right should the tax man come knocking but it’s unlikely they will do so.
But it’s worth knowing what happens if they do look and decide you’re inside. They take the dividends you drew from your company and convert them to salary — because you should have been treated as an employee — and they send you a bill for the income tax and National Insurance on the difference. Then, on top, they add a penalty, and the size of that depends on how they judge your behaviour: a genuine, honest mistake is treated very differently from something they consider deliberate or something you ought to have known.
Who’s actually on the hook — this is the bit that changed
For a long time the contractor was always liable for their own IR35 position. That’s no longer automatically true.
HMRC now looks at your engager — the business you contract with — and its size decides who carries the risk:
- Large engagers, based in the UK? They are responsible for determining your status, and the liability sits with them.
- Small or Medium engagers, or one based outside the UK? The responsibility — and the liability — stays with you.
“Large” here is a formal definition based on company size, not a guess. You’re entitled to ask your engager which they are, and they should be able to tell you.
What’s new for 2026: the thresholds for counting as “small” went up on 6 April 2026 — turnover rising from £10.2m to £15m, and the balance sheet total from £5.1m to £7.5m. In plain terms, more engagers now count as small, which means the responsibility for IR35 is landing back on more contractors’ own shoulders. If you’re working for a mid-sized business that used to handle this for you, it’s worth checking whether that’s still the case — because if they’ve tipped into “small,” it’s your problem again, and you may not have been told.
What to do about it
If you think IR35 might apply to you at all, here’s the order we’d normally recommend.
First, get your contract and working practices reviewed. These two things are the foundation of any IR35 investigation, and the ones people most often get wrong. Your contract can say all the right things, but if your day-to-day working practices tell a different story, it’s the reality that counts. A few firms do these reviews properly — Markel Tax, Qdos and Kingsbridge are the ones we’ve dealt with over the years.
Then, if you’re still uncomfortable — and you’re working for a small or overseas engager, so the liability is yours — consider insurance. IR35 is one of the few tax risks you can actually insure against, precisely because it’s so subjective. You can’t insure your normal tax bill; you earn X, you pay Y. But because IR35 is a matter of judgement rather than arithmetic, insurers will cover it.
And they cover it properly. A good IR35 policy pays not just your legal and defence costs, but the tax and National Insurance bill and the penalty itself if the case goes against you. That’s the belt-and-braces position.
Insurers will normally want your contract and working practices reviewed first, and to be satisfied with what they see, before they’ll take you on — which is no bad thing, because it means you find out where you stand either way.
If you’re a contractor and you’re not certain which side of the line you’re on — or who’s carrying the liability under the 2026 rules — we go through this with EVERY one of our contractor clients. Give us a call and we’ll talk it through properly. If your current accountant has never raised IR35 with you at all, that itself might tell you something.
