How IR35 Works — The Client's Obligation
Note: This guide reflects IR35 rules as they apply from April 2021 for medium and large businesses. Small companies (two or more of: turnover ≤ £10.2M, balance sheet ≤ £5.1M, ≤ 50 employees) are currently exempt from off-payroll obligations — contractors in small company engagements are responsible for their own IR35 determination.
| Step | What the Client Must Do | Risk if Done Incorrectly |
|---|---|---|
| 1. Determine worker status | Complete a Status Determination Statement (SDS) for each contractor | HMRC may deem the determination negligent — client liable for tax |
| 2. Issue the SDS | Provide SDS to contractor and their intermediary | Failure to provide SDS = client automatically liable |
| 3. Apply correct tax treatment | If inside IR35: deduct income tax + employee NI; pay employer NI | Underpayment = HMRC debt, interest (3.25%), penalties |
| 4. Maintain records | Keep SDS and supporting evidence for HMRC inspection | HMRC can investigate up to 6 years back |
The Three IR35 Status Factors
| Factor | Points towards Employment (Inside IR35) | Points towards Self-Employment (Outside IR35) |
|---|---|---|
| Control | Client controls how the work is done | Worker decides how to do the work |
| Substitution | Worker personally must do the work | Worker can send a substitute |
| Mutuality of Obligation | Client must offer and worker must accept work | No obligation on either side to offer/accept work |
IR35 Risk in Software Development
HMRC has collected over £1 billion from IR35 investigations in financial services alone. Software development is the second most investigated sector. The risk of an incorrect determination is real.
The ClickMasters IR35 Solution
No Status Determination Statement required.
No employer NI calculation or payment.
No PAYE obligation on client.
No HMRC liability if the engagement later changes.
One monthly invoice. Complete administrative simplicity.
ClickMasters eliminates IR35 entirely through our employment model. ClickMasters engineers are ClickMasters employees — not contractors. You engage ClickMasters as a company (B2B service contract), not an individual. No IR35 consideration arises at all:
IR35 Cost Comparison
| Scenario | Rate | Monthly cost (1 engineer, 21 days) | IR35 liability |
|---|---|---|---|
| Outside IR35 contractor | £550/day | £11,550 | Client responsible for SDS |
| Inside IR35 contractor (equivalent) | £650/day (grossed up) | £13,650 + employer NI | £1,889 employer NI per month |
| ClickMasters staff augmentation | £5,500/mo all-in | £5,500 | Zero — engineers are employees |