Your Guide to IR35: What It Means for Tech Contractors in 2026

If you work as a contractor in the UK tech industry, IR35 affects how much tax you pay, who decides how you're taxed, and – increasingly – whether clients will engage you at all. Understanding it is foundational to protecting your income and your career as an independent professional. 

This guide covers what IR35 actually is, how your status is determined, what the recent rule changes mean for you, and what practical steps you can take to protect your position. 

What Is IR35? 

IR35 is UK tax legislation designed to prevent what HMRC calls "disguised employment" – where someone works in a way that is functionally identical to employment but contracts through a limited company (known as a Personal Service Company, or PSC) to pay less tax and National Insurance. 

If a contract is deemed to fall inside IR35, you are treated as an employee for tax purposes, meaning income tax and National Insurance are deducted at source. If it falls outside IR35, you are recognised as genuinely self-employed and retain the tax efficiencies that come with operating through your own company. 

The distinction has significant financial implications. An inside-IR35 determination at the same day rate means meaningfully less take-home pay once income tax and National Insurance are deducted at source. 

A brief IR35 timeline: how we got here 

IR35 was introduced in 2000, but its practical impact on most tech contractors arrived with two major reforms: 

• 2017: The government shifted responsibility for IR35 status determinations from contractors to end clients in the public sector. Public bodies, not contractors, became responsible for deciding whether each engagement fell inside or outside IR35. 
• April 2021: The same off-payroll rules were extended to medium and large private sector clients. This was the change that fundamentally altered the contracting landscape for tech professionals. 
• April 2024: The set-off (offset) mechanism was introduced, requiring HMRC to offset tax already paid by a contractor's PSC against any liability owed by the client following a successful HMRC challenge. This removed the double-taxation risk that had made many clients reluctant to issue outside-IR35 determinations. 
• April 2025: The financial thresholds that define a "small company" increased, meaning the turnover threshold rose to £15 million (from £10.2 million) and the balance sheet threshold to £7.5 million (from £5.1 million). An estimated 14,000 companies previously classified as medium-sized have now been reclassified as small, meaning contractors working for those clients are once again responsible for determining their own IR35 status. 

How IR35 status is determined 

Three factors form the foundation of any IR35 assessment: 

• Control: Does the client control what work you do, when you do it, and how you do it? High levels of control point toward employment. Genuine autonomy over your working methods points toward self-employment. 
• Substitution: Could you send a suitably qualified substitute to fulfil the contract without the client's approval being required? A genuine, unrestricted right of substitution is one of the strongest indicators of outside-IR35 status. Note that following the updated CEST tool in April 2025, HMRC has tightened its interpretation here: the right must be genuinely exercisable, not just written into a contract. 
• Mutuality of obligation: Is there an expectation that the client will continue to offer work, and that you will continue to accept it? Ongoing mutual obligation resembles employment. Discrete project-based engagements with no expectation of continuation point toward self-employment. 

These tests are applied holistically – no single factor is determinative, and working practices matter as much as what your contract says on paper. HMRC will look at how the engagement actually operates, not just how it is documented. 

Who decides your IR35 status? 

This depends on the size of the client you're working with. 

• Large and medium private sector clients and all public sector bodies are responsible for making the IR35 determination. They must issue a Status Determination Statement (SDS) explaining their conclusion and the reasoning behind it. You have the right to challenge an SDS you believe is incorrect, and the client must respond to that challenge. 
• Small companies (those meeting at least two of: under £15m turnover, under £7.5m balance sheet total, under 50 employees) are exempt. If your client qualifies as small, the responsibility for determining your IR35 status sits with you. 

If you're unsure whether your client qualifies as small, you can formally request confirmation. They are legally required to respond within 45 days; if they fail to do so, you can seek a court order compelling disclosure. 

One important nuance: if a subsidiary appears small in isolation but its parent company is medium or large, the parent company's size applies and the responsibility remains with the end client. 

The problem with CEST – and what to do instead 

HMRC's Check Employment Status for Tax (CEST) tool is the official mechanism for assessing IR35 status. In theory, HMRC commits to standing behind its results – but in practice, relying on CEST alone carries real risk. 

Use of the tool has declined by 73% since 2021-22, according to a Freedom of Information request by IR35 Shield, with a further 50% year-on-year drop in 2024-25. The reasons are well documented: CEST returns an inconclusive "unable to determine" result in roughly 20% of cases, its underlying logic was not substantively updated for years despite more than 20 IR35 tribunal decisions occurring in that period, and legal experts have repeatedly noted that HMRC caseworkers conducting investigations focus on facts and case law, not CEST outcomes. 

HMRC updated CEST in April 2025, but expert commentary described many of the changes as cosmetic. International law firm Bird & Bird noted that the revised tool offers "another window into HMRC's thinking", but that relying solely on a CEST result "risks glossing over the regime's inherent complexities." 

The practical takeaway: use CEST as a starting point, not a final answer. For any engagement where your status is borderline or the financial stakes are high, get a specialist IR35 review from a qualified adviser. 

IR35’s impact on the contract market: what the data shows 

The cumulative impact of IR35 on the UK contracting market is measurable and significant. 

According to IPSE's IR35 Spotlight 2025 report, 63% of contractors say they will only continue contracting if they can secure outside-IR35 engagements. The proportion of engagements determined to be outside IR35 has fallen to 70%, down from 80% in both 2023 and 2024. And 26% of contractors were not working at the time of the survey, with 56% of those out of work attributing this directly to the impact of IR35's reforms. 

Further research from Qdos found that IR35 remains the top concern for UK contractors heading into 2026, with a quarter (25%) citing the lack of outside-IR35 opportunities as the biggest threat to their business viability. 

For tech contractors specifically, this matters because the UK tech industry is heavily dependent on flexible talent. 53% of contractors have rejected an offer of work in the previous 12 months solely because it was deemed inside IR35 – a dynamic that contributes directly to the skills shortages affecting tech and fintech businesses. 

Common mistakes contractors make – and how to avoid them 

Assuming your contract language is enough. A well-worded contract that claims substitution rights or limited control means nothing if your day-to-day working reality contradicts it. HMRC looks at actual working practices, and a discrepancy between contract and practice is a red flag during any investigation. 

Accepting a blanket inside-IR35 determination without challenge. Some clients apply inside-IR35 determinations across entire contractor populations rather than assessing roles individually. You are entitled to challenge an SDS, and in many cases, a detailed challenge – particularly one that evidences lack of control and genuine substitution – results in a revised determination. Consider engaging an IR35 specialist to support the challenge. 

Not keeping evidence of outside-IR35 working practices. If HMRC opens an enquiry, the burden of demonstrating your status falls largely on you. Keep records of working patterns, communications that evidence autonomy, and any instances where substitution rights have been exercised or genuinely existed. 

Ignoring the small company threshold changes. With 14,000 companies reclassified as small from April 2025, contractors who previously relied on their client to handle IR35 determinations may now find that responsibility has reverted to them. If you're not sure whether this applies to your engagement, ask. 

Over-relying on umbrella companies as a risk-free alternative. Umbrella employment removes the IR35 compliance burden, but it also removes the tax efficiencies of operating through your own PSC and comes with its own costs and compliance obligations. Umbrella company regulation is tightening further, with joint and several liability reforms coming into force in April 2026, subject to legislation being enacted in final form. 

Practical steps to protect your IR35 position 

Review your contract against your working reality. Your contract and your actual day-to-day practices should be consistent. If they aren't, one of them needs to change. 

Request an SDS. If you are working with a medium or large client and have not been issued a Status Determination Statement, you are entitled to request one. The reasoning it contains will tell you how the client assessed your status and where any vulnerabilities may lie. 

Get a professional IR35 review. For higher-value contracts or any role where your status is genuinely uncertain, an independent review from a specialist is worth the investment. The tax exposure from an incorrect determination – backdated liability, interest, and penalties – far outweighs the cost of professional advice. 

Consider IR35 insurance. Several specialist providers offer contractor insurance that covers the cost of an HMRC investigation and any resulting tax liability. For long-term contractors operating primarily outside IR35, this provides meaningful protection against retrospective challenges. 

Stay informed. IR35 is not static. The offset mechanism in 2024, threshold changes in 2025, and 2026 umbrella reforms all illustrate that the legislative landscape continues to evolve. Subscribing to updates from IPSE or a specialist accountant will help you stay ahead of changes before they affect your contracts. 

Finding outside-IR35 roles: what to look for 

Outside-IR35 opportunities haven't disappeared, but the market has tightened. The best-positioned contractors are those who can clearly evidence genuine self-employment characteristics: project-based deliverables rather than ongoing presence, clear substitution arrangements, and limited day-to-day direction from the client. 

When evaluating new roles, look beyond the stated IR35 status. Ask the client how the determination was made, whether a specialist tool or adviser was used, and what their process is for reviewing determinations over time. Clients who have invested in proper IR35 compliance processes are less likely to issue blanket determinations and more likely to reassess if your working practices support an outside-IR35 conclusion. 

If a client insists on an inside-IR35 determination for a role that doesn't reflect genuine employment, factor the financial impact into your rate negotiation – inside-IR35 rates should reflect the tax and National Insurance you will now bear as a deemed employee. 

How Glocomms helps tech contractors 

Navigating IR35 while managing a contracting career is genuinely complex – and the stakes are high. At Glocomms, we work with tech contractors across software engineering, data, cybersecurity, infrastructure, and commercial services to connect them with opportunities that match both their skills and their working preferences. 

We understand the IR35 landscape and work with clients who take compliance seriously, so you can focus on finding the right role. Ready to start? Register your CV to be considered for relevant contract opportunities as they arise, or browse our latest roles to find your next contract today. 

This article is intended as a general overview and does not constitute tax or legal advice. For advice specific to your circumstances, consult a qualified IR35 specialist or accountant.