Contractors ask us for practical IR35 defence tips because the stakes are high: status mistakes can trigger PAYE assessments, penalties and a hit to your cashflow. The rules have settled since the 2021 reforms, but there are fresh wrinkles to consider this tax year – from client-led dispute timelines to small company changes that start to bite later. The contractor market remains large, with self-employment jobs at 4.34 million in Q1 2025, easing to 4.19 million in Q2 (ONS, 2025). That makes clear status processes essential for both parties.

This guide sets out IR35 defence tips you can apply now: how to build a defensible status, where CEST helps and where it doesn’t, how to use the client-led disagreement route, the risks around umbrellas, and what the “small company exemption” really means for 2025/26 and beyond. If you want help applying this to your contracts and working practices, you can speak to our team.

Build your case around working practices, not just the contract

Paperwork matters, but HMRC and tribunals look at what actually happens day-to-day. Your IR35 defence tips should start with aligning contract terms to real working practices and keeping evidence.

Control: Show autonomy over how and when you deliver. Evidence could include your own project plan, acceptance criteria and client sign-offs rather than timesheets tied to supervision. See HMRC’s overview of status factors in Understanding off-payroll working (IR35) (HMRC, 2023/25).
Substitution: A genuine, unfettered right to send a suitably qualified substitute is powerful. Keep a substitution clause and any real-world examples of offers or use. Document client process for approving a substitute.
Mutuality of obligation: Avoid open-ended obligations to accept and provide work. Use project-based statements of work with clear deliverables and end dates.
Supervision and integration: Minimise supervision and avoid being slotted into internal hierarchies, rotas or performance appraisals. Keep contractor-specific onboarding and separate employee benefits.
Financial risk and tools: Demonstrate business risk – for example, milestone billing, rectification at your own cost, your own insurance and equipment, and the ability to make a loss on a fixed-price scope.
Right of dismissal: Contracts should allow termination for breach/delivery failure rather than employee-style notice and capability procedures.

Status determination statements and the client-led disagreement route

Medium and large clients must issue a Status Determination Statement (SDS) with reasons. If you disagree, there is a client-led disagreement process. Key points:

Reasons in writing: Ask for a reasoned SDS. The client should take “reasonable care” when making determinations; boilerplate is a risk for them (and an opportunity for you to challenge). See HMRC’s Off-payroll working collection (HMRC, 2025).
Dispute timing: Clients must respond within 45 days or they become the deemed employer for PAYE until they do. (HMRC, 2025).
Evidence pack: Keep a neat pack: scope, deliverables, change control, emails showing autonomy, any substitution offers, invoices, professional indemnity cover, and acceptance certificates. This supports a swift, factual challenge.

CEST: Helpful, but treat as one input

HMRC’s CEST tool can help frame a discussion, but it’s not mandatory and only reflects the answers provided. Results rely on accurate, engagement-specific facts. Use it as a sense-check, not the whole defence.

Use thoughtfully: Run CEST together with the client to align on inputs; save the PDF output with notes. HMRC’s CEST guidance and usage notes explain how workers and hirers can use CEST and how it fits with the disagreement process.
Fill the gaps: If CEST returns “unable to determine”, that’s a sign to tighten working practices or clarify the contract. Your IR35 defence tips should include a short status memo addressing control, substitution and financial risk in plain English.

Small company exemption: What actually applies in 2025/26

If your private-sector client is “small” for Companies Act purposes, the off-payroll rules do not apply to them; you assess your own status instead. Importantly, two thresholds increased for financial years beginning on or after 6 April 2025 (turnover to £15m, balance sheet to £7.5m), but the effect on off-payroll responsibilities is delayed by accounting period and filing timetables.

Thresholds: See Companies House guidance on audit/size thresholds for periods from 6 April 2025 (Companies House, 2025).
When it bites: HMRC’s Employment Status Manual confirms that, due to the two-year size test and filing timings, the earliest most clients’ off-payroll status changes will impact is tax year 2027/28 (HMRC, 2025). Do not assume your client has switched to “small” for IR35 this year – check their filed accounts and year ends.
Action for contractors: Ask end-clients to confirm their size status each April with reference to the Companies Act tests. If they’re small, your own status assessment and evidence become even more important.

Umbrella company pitfalls and labour supply chains

Some engagements run through umbrella companies. The rules here are tightening, and liabilities can move up the chain.

PAYE in the chain: HMRC has updated guidance on umbrella companies and the responsibilities of agencies and end clients in labour supply chains. If the umbrella fails to account for PAYE, HMRC may recover it from others in the chain (HMRC, 2025).
Practical checks: Verify the umbrella is operating PAYE correctly, payslips reconcile to assignments, and holiday pay is explicit. Keep Key Information Documents and payslips.
If in doubt: Consider a direct PSC engagement with a clean SDS and fee-payer, or get a specialist contract review.

Insurance, tax consequences and when to seek reviews

Even with strong IR35 defence tips, mistakes happen. Plan for the downside and know your routes to obtain assurance.

Tax consequences inside IR35: Where a contract is inside, the fee-payer must operate PAYE and NIC on the deemed direct payment. Keep SDS, payslips and deductions aligned with invoices to avoid reconciliation surprises.
Business protection: Consider tax investigation insurance that includes IR35 enquiries. It won’t fix status, but it helps with adviser costs.
Independent reviews: Use independent contract and working-practices reviews at the start, at project change, and before renewals. For clients, we can set up a light-touch SDS workflow and training. If you need help now, contact us and we’ll scope a proportionate review.

Your next steps

IR35 is ultimately about facts on the ground. If you remember one set of IR35 defence tips, make it this: align the contract to actual delivery, keep clear evidence, use CEST as a cross-check rather than a verdict, and challenge SDS decisions within the 45-day window with a tidy pack of proof. Do not assume the small company uplift changes anything for your engagement this tax year – most size-driven off-payroll switches won’t land until 2027/28. If you’re offered an umbrella route, validate PAYE and pay documentation before you sign.

We can help you set up practical processes that protect your position and keep projects moving. For a clear, client-ready checklist and a review of your contracts and working practices, get in touch. Get in touch with us for IR35 defence tips and a tailored IR35 status review that puts you on firm ground.

Navigating IR35 defence tips for modern contractors