IR35 is a frequently misunderstood aspects of contracting in the UK, and in Asset Finance, where interim and contract roles are a regular feature of platform implementations and transformation programmes, getting it right matters both for the contractors taking those roles and the organisations engaging them. Let’s explore what inside and outside IR35 actually means, how status is determined, and what has changed in the contracting landscape in 2026.
The Basic Distinction
IR35, formally the off-payroll working rules, determines how a contractor operating through a personal service company (PSC) is taxed. The status reflects the underlying nature of the working relationship, not the contract structure or job title.
Inside IR35 means the engagement is treated as employment for tax purposes. The contractor’s fees are subject to PAYE income tax and National Insurance contributions, deducted at source by the fee-payer. The contractor receives their pay net of these deductions, broadly as an employee would. In 2026/27, employer Class 1 NICs at 15% are paid on top by the fee-payer.
Outside IR35 means the engagement is treated as genuine self-employment. The contractor’s PSC is paid gross, pays Corporation Tax on profits, and the contractor can extract income in a tax-efficient way, typically a combination of salary and dividends. The difference in net take-home pay between inside and outside IR35 can be substantial, often thousands of pounds annually on a day rate engagement.
Who Decides, and How
Since the private sector reforms of April 2021, medium and large businesses are responsible for determining the IR35 status of contractors they engage and must issue a Status Determination Statement (SDS) to both the contractor and the next party in the supply chain. The SDS must state whether the engagement is inside or outside IR35, with reasons. Failure to issue one shifts liability to the client by default.
Small businesses, defined for 2026/27 as those meeting no more than one of: turnover over £10.2 million, balance sheet over £5.1 million, or more than 50 employees, are exempt from the 2021 reforms. For small clients, the contractor’s own PSC determines status. Most lenders and larger software vendors in Asset Finance will qualify as medium or large, meaning they hold the determination responsibility. Smaller vendors and integrators may fall within the small company exemption, but this should be assessed carefully rather than assumed.
The Three Tests That Determine Status
IR35 status is determined by the nature of the working relationship, assessed against three tests drawn from employment case law. These are the tests HMRC and tribunals apply, contract wording alone is not determinative and can be overridden if it does not reflect reality.
Substitution. Does the contractor have a genuine right to send a substitute, and would the client accept one? A genuine, unrestricted right of substitution supports outside IR35 status. In Asset Finance implementation roles, where clients often require specific individuals with named platform experience, substitution arguments can be more difficult to sustain.
Control. How much control does the client exercise over how, when, and where the contractor works? Contractors managed through the client’s line management structure and directed on how to perform their work are more likely to fall inside IR35. Those engaged to deliver defined outputs with autonomy over method are more likely to be outside.
Mutuality of obligation. Is the client obliged to offer work and the contractor obliged to accept it? Employees have this mutual obligation; genuinely self-employed contractors do not. Fixed-term project engagements with a defined scope and mutual termination rights support a lower mutuality argument.
HMRC’s CEST tool is available to support determinations, and HMRC states it will be bound by results where accurate information is entered. However, CEST does not test every aspect of status and does not always produce a determination. Clients should ensure assessments reflect actual working arrangements, not idealised ones.
What Changed in 2026
Two developments are directly relevant to contractors and organisations engaging them in Asset Finance.
Employer NICs increase. From April 2025, the employer NICs rate rose from 13.8% to 15%, with the threshold for liability reducing from £9,100 to £5,000. This has increased the cost of inside IR35 engagements for fee-payers and has in some cases changed the commercial calculus around how organisations structure contractor engagements.
Umbrella company reform. From 6 April 2026, where a contractor is engaged through an umbrella company, the recruitment agency in the supply chain is jointly and severally liable for any unpaid PAYE and NICs if the umbrella company fails to pay. Where there is no agency, liability passes to the end client. This significantly increases due diligence responsibilities on both agencies and clients. Organisations engaging contractors through umbrella structures should ensure they are working with FCSA-accredited or equivalently compliant providers.
What This Means in Practice for Asset Finance Roles
Contract roles in Asset Finance transformation programmes (implementation consultants, business analysts, project managers, solution architects) are typically engaged for defined deliverables on a project-by-project basis. This structure can support an outside IR35 determination where working arrangements genuinely reflect self-employment: defined outputs, genuine substitution rights, limited day-to-day client control, and a clear project scope.
However, the determination must reflect reality. A contractor managed as a de facto employee, attending daily stand-ups directed by the client’s project office, unable to substitute, and expected to follow the client’s internal processes, is unlikely to sustain an outside IR35 position regardless of contract wording.
For contractors, the practical advice is to ensure working arrangements genuinely support the status claimed, maintain accurate documentation, and take professional advice where the position is uncertain. For organisations engaging them, the responsibility is to make considered, well-documented determinations rather than blanket decisions that ignore the specifics of each engagement.
This post is for informational purposes only and does not constitute legal or tax advice. IR35 status depends on the specific facts of each engagement. We recommend taking professional advice from a qualified tax adviser or employment lawyer.
Resilient Management Solutions places contract and interim professionals across Asset, Auto, Equipment Finance and Leasing. If you are looking for your next contract role or need to resource a transformation programme, we can help.
