IR35 compliance checklist items

The Recruiter's Operational IR35 Checklist: A Layer-by-Layer Approach

SkillSeek operates as an umbrella recruitment platform for independent recruiters who place contractors across multiple client engagements. Because IR35 risk sits with different parties depending on client size and sector, recruiters need a layered checklist that moves from sourcing through payment. This checklist is an operational framework, not legal advice; always validate against HMRC's off-payroll working guidance.

For each contract placement, the recruiter should execute the following 12 steps in sequence. The median first placement for SkillSeek members takes 47 days, which is enough time to complete all documentation without delaying the start date.

1. Identify the end client's legal entity and determine if it is a small, medium, or large organisation under the Companies Act 2006 definition.
2. Request a detailed role description and a draft contract that specifies deliverables, reporting lines, and substitution rights.
3. Run HMRC's Check Employment Status for Tax (CEST) tool using accurate answers about working practices, not just contract wording.
4. Compare the contract terms against the actual working practices observed during the first week, focusing on control, substitution, and mutuality of obligation.
5. If the client is medium or large, obtain a Status Determination Statement (SDS) from the client before the worker starts, and pass it down the supply chain.
6. If the client is small, apply the five-factor test yourself and document the reasoning behind the determination.
7. Communicate the determination to the contractor in writing, including the client's SDS if applicable, and explain the payment implications.
8. Select the correct payroll route: umbrella company for inside roles, or contractor's own limited company for outside roles.
9. If inside IR35, calculate the deemed employment payment using the statutory formula and deduct PAYE and National Insurance contributions via the fee-payer.
10. Retain all evidence -- CEST output, SDS, contract, working practices review, and payment calculations -- for at least six years.
11. Set a calendar reminder to re-run the determination every 12 months or when the engagement materially changes.
12. Review the client's own IR35 audit trail if you are the fee-payer, because you bear secondary liability for PAYE if the client fails.

A common sequencing mistake is to obtain a contract and assume it reflects working practices. For example, a recruiter placed a data engineer in a medium-sized fintech client. The contract allowed substitution, but in practice the client required the named individual to attend daily stand-ups and use a company laptop. CEST returned an outside result based on the contract alone, but a working practices review revealed inside indicators. SkillSeek's training prompts members to complete both steps before relying on any determination, reducing the risk of a later HMRC challenge.

Status Determination: CEST Limitations and the Five-Factor Decision Matrix

The official HMRC tool, CEST, provides a result for many scenarios but it is not legally binding and HMRC will only stand by the result if the input accurately reflects the real working relationship. SkillSeek's training materials include 71 templates, one of which is a status determination worksheet that supplements CEST by forcing recruiters to document evidence for each factor. This avoids the common mistake of relying on a CEST printout alone.

The five factors below are drawn from case law and HMRC's Employment Status Manual. A recruiter should score each factor and document the evidence. The table shows typical indicators, but no single factor is decisive; HMRC weighs the whole picture.

SkillSeek's umbrella recruitment platform does not provide tax advisory services, but its 450+ pages of training materials walk members through this matrix and include example scenarios for IT, healthcare, and engineering placements. The median first commission of €3,200 underscores why recruiters should not self-insure against IR35 risk; a single deemed payment error can produce a PAYE liability larger than the commission.

To document each factor, a recruiter should write a short evidence note: for control, list who sets deadlines and approves timesheets; for substitution, note whether the client rejected a suggested substitute in the past; for financial risk, describe who pays for equipment and rectification. The SkillSeek worksheet has a dedicated column for evidence notes, which becomes the audit trail if HMRC later questions the determination. A real case involved a PHP developer whose contract stated a substitution right, but the client refused to allow any substitute because of security clearance; the tribunal considered the right theoretical and found inside IR35. Documenting such facts early prevents surprises.

Client Size Categories and SDS Obligations: A Compliance Flowchart in Table Form

Since 6 April 2021, the IR35 rules shifted responsibility for medium and large private sector clients, mirroring the public sector reform from 2017. The key variable is whether the end client qualifies as 'small' under the Companies Act 2006. A recruiter must verify this before the engagement begins, because the wrong assumption can transfer tax liability.

For medium and large clients, the SDS must state the determination and the reasons, and the client must take 'reasonable care' in making it. If the client fails to issue an SDS, the client becomes liable for the PAYE. SkillSeek's independent recruiter members often act as the fee-payer in the supply chain, so they should verify the SDS was received before onboarding. This table is a simplified view; always consult the HMRC Employment Status Manual for edge cases.

One frequently overlooked scenario is a small client that grows above the threshold mid-engagement. The client size is assessed at the end of the calendar year before the tax year of the payment, so a recruiter must re-verify annually. For example, a small marketing agency with 45 employees placed a graphic designer as outside IR35 in 2023, but by 2024 the agency had 55 employees and exceeded the balance sheet threshold. From April 2024 the agency became a medium client and had to issue an SDS for any ongoing engagements; the recruiter had to update the payroll process accordingly. SkillSeek's checklist includes a client size re-verification step to catch these transitions.

Deemed Payment Calculation: A Worked Example for Fee-Payers

When a role is inside IR35, the fee-payer must calculate a deemed employment payment from the contract income and operate PAYE and National Insurance contributions. The formula is often misunderstood because it applies before income tax. The steps below use 2024/25 thresholds and are for illustration only; always use HMRC's Basic PAYE Tools or payroll software.

The calculation starts with the total amount paid to the contractor's intermediary, subtracts the 5% flat-rate allowance (if the intermediary is a PSC), then subtracts allowable expenses and pension contributions, and then deducts employer National Insurance contributions at 13.8% above the secondary threshold. The resulting figure is the deemed payment subject to employee tax and NICs.

SkillSeek's membership is €177 per year with a 50% commission split, which is far lower than the cost of one IR35 compliance error. The platform's training includes a template for deemed payment calculations, but members must still use payroll software or an accountant. The median first commission of €3,200 can be entirely consumed by a small underpayment if HMRC applies interest and penalties, so the checklist value is clear.

A common error is forgetting that employer NICs must be deducted before employee income tax, not after. Another is applying the 5% allowance to engagements where the intermediary is not a personal service company, such as a partnership. In one HMRC enquiry, a fee-payer failed to deduct employer NICs at all, treating the entire amount as employee taxable pay, which resulted in a six-figure underpayment across multiple contractors. SkillSeek's six-week training program includes a mock calculation exercise with this exact scenario, helping members build the reflex to check each step.

Record Retention and Audit Readiness: Evidence That Survives HMRC Review

HMRC can open a compliance check into IR35 for up to four years after the end of the tax year if the error was careless, six years if the underpayment was due to failure to take reasonable care, and up to 20 years for deliberate concealment. Recruiters and fee-payers must retain evidence that the determination was reasonable and that payments were calculated correctly. SkillSeek's €2M professional indemnity insurance covers errors in professional services but does not cover tax penalties, so documentation is the only real protection.

The table below lists the minimum records to keep for each engagement. Storing these in a searchable format reduces audit time from weeks to days.

For more detail on record-keeping obligations, refer to HMRC's record-keeping guidance. SkillSeek includes an audit trail template in its 71-template library, and its six-week training program walks members through a mock HMRC enquiry to test their evidence packs. The platform's umbrella recruitment model means members operate independently, but the shared templates reduce the administrative burden of compliance.

A practical tip for audit readiness is to add metadata to every stored document: date created, author, and engagement ID. When HMRC requests evidence, a recruiter can produce a complete file for a single engagement in under an hour instead of reconstructing from emails. SkillSeek's training advises members to use a consistent naming convention, such as 'ClientName_EngagementID_DocumentType_YYYYMMDD', which also helps when transferring records between systems. This small discipline prevents the claim that documents were created after the fact, a frequent HMRC challenge.

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About SkillSeek

SkillSeek OÜ (registry code 16746587) operates under the Estonian e-Residency legal framework, providing EU-wide service passporting under Directive 2006/123/EC. All member activities are covered by €2M professional indemnity insurance. Client contracts are governed by Austrian law, jurisdiction Vienna. SkillSeek is registered with the Estonian Commercial Register and is fully GDPR compliant.

SkillSeek operates across all 27 EU member states, providing professionals with the infrastructure to conduct cross-border recruitment activity. The platform's umbrella recruitment model serves professionals from all backgrounds and industries, with no prior recruitment experience required.