IR35 has a habit of landing on HR's desk the moment someone tries to bring in a contractor at speed. The legislation itself sits in tax law, but the day-to-day compliance work, status assessments, contract wording, working practices, record-keeping, is very much an HR responsibility in practice. Get it wrong and the business can face significant back-tax liabilities, penalties, and reputational damage with its contractor workforce.
This isn't a legal deep-dive. It's the practical checklist HR teams actually need to run a compliant, defensible contractor engagement process.
What HR is actually responsible for
Since the 2021 off-payroll working rules extended to the private sector, medium and large businesses (the end client) carry the responsibility for determining a contractor's IR35 status, not the contractor or their intermediary. That determination, and the paper trail behind it, usually sits with HR or a shared HR/procurement function.
In practice, that means HR owns:
Status determination. Assessing whether each contractor engagement falls inside or outside IR35, using HMRC's Check Employment Status for Tax (CEST) tool or an equivalent assessment, before work begins.
The Status Determination Statement (SDS). Producing a compliant SDS for every engagement, giving reasons for the conclusion, and passing it to both the contractor and the fee-payer.
A working process for disagreements. HMRC requires a statutory client-led disagreement process. Contractors can challenge a determination, and HR needs a documented route to respond within 45 days.
Ongoing monitoring. Status isn't a one-off tick-box. If a contractor's actual working practices drift from what was assessed, more supervision, more integration into the team, fixed hours, the determination can become inaccurate, and HMRC will look at practice over paperwork.
Building the compliance process
1. Assess before you engage, not after.
Run the status assessment as part of the onboarding workflow, before a contract is signed or work starts. A retrospective assessment is a red flag to HMRC and offers no protection.
2. Keep contracts and reality aligned.
A contract that says "outside IR35" is worthless if the contractor is managed exactly like an employee, fixed hours, direct supervision, no right of substitution. Train line managers on what genuinely distinguishes a contractor engagement, because they're the ones who can accidentally undo HR's paperwork.
3. Centralise your SDS records.
Every determination, its reasoning, and any challenge should be logged and retrievable. HMRC can and does request historic SDS documentation, and "we can't find it" is not a defensible answer.
4. Audit regularly, not just at engagement.
Build a periodic review into contractor management, particularly for long-running engagements, where working practices are most likely to have quietly shifted since the original assessment.
5. Loop in fee-payers and agencies early.
Where contractors are engaged via an agency, liability can shift down the chain if the wrong party makes deductions. Make sure everyone in the chain knows who is responsible for what before the first invoice is paid.
Where Rectec fits in
A lot of this compliance burden comes down to having the right systems talking to each other, contractor and vendor management platforms, workforce and payroll tools, and a clear audit trail between them. Rectec helps HR teams find and compare the contractor management and workforce systems built to handle exactly this: status tracking, SDS storage, and integration with payroll so determinations don't get lost between tools. It won't make the IR35 call for you, but it makes sure you're not trying to run this process on spreadsheets and hope.
The takeaway
IR35 compliance isn't a single event, it's a process that has to survive contact with the day-to-day reality of how contractors are actually managed. Assess early, document everything, keep line managers honest about working practices, and review regularly. Get the process right and IR35 becomes a manageable piece of contractor management, not a recurring source of risk.
FAQs
Who is responsible for IR35 status determination, HR or the contractor?
For medium and large private-sector businesses, the end client (typically via HR) is responsible for determining status and issuing the Status Determination Statement, not the contractor or their intermediary.
How often should we reassess a contractor's IR35 status?
At minimum, review it whenever the contract is renewed or scope changes significantly, and periodically for any engagement running longer than a few months, since working practices can drift from the original assessment.
What happens if a contractor disagrees with our determination?
You're required to have a client-led disagreement process and must respond to a formal challenge within 45 days, either upholding the original determination with reasons or issuing a new one.
Does using an umbrella company remove our IR35 responsibility?
No. The end client still carries responsibility for the status determination itself, though liability for deductions can shift along the labour supply chain depending on who the fee-payer is.
What records should we keep for an IR35 audit?
Every Status Determination Statement, the reasoning behind it, any disagreement correspondence, and evidence of the actual working practices in place, not just the contract wording.