IR35 ATS: How to Run a Compliant UK Contractor Pipeline in 2026

IR35 (off-payroll working rules) holds UK end-clients responsible for determining whether contractors are inside or outside IR35 since April 2021. HMRC enforcement is now active and back-tax assessments commonly reach £100k+ per misclassified contractor. UK SMBs hiring contractors need a clear ATS pipeline with documented Status Determination Statements (SDS), routing logic, and audit trail.

What IR35 actually requires from your ATS

• SDS at the role level: Status Determination Statement determining inside or outside IR35, issued before contractor starts
• Reasoning recorded: the factors considered (mutuality of obligation, control, substitution rights, etc.)
• Issued to contractor and any agency in the chain
• Audit trail: HMRC expects to see who made the determination and when
• Status disagreement process: contractor can disagree; you must respond within 45 days

How Treegarden's IR35 pipeline works

The contractor pipeline includes IR35 stages distinct from PAYE roles:

1. Role classification at requisition: hiring manager flags 'IR35 in scope' and answers HMRC CEST tool questions inline
2. SDS generation: Treegarden produces an SDS PDF based on CEST answers, signed by the determination owner
3. Inside vs outside routing: inside-IR35 candidates route to umbrella company workflow; outside-IR35 to Limited Company onboarding
4. Rate uplift calculation: for inside-IR35 roles, optional rate uplift to compensate for additional tax (typically 15-20%)
5. SDS distribution: automatic email to contractor + agency with PDF copy
6. Disagreement handling: contractor can submit disagreement via portal; HR has 45-day SLA
7. Audit log: HMRC-grade evidence retention

Inside vs outside IR35: what changes for the contractor

Inside IR35: contractor is treated as employee for tax. End-client (or fee-payer) deducts PAYE and NI. Contractor receives net pay; can use umbrella company. Loses ability to claim business expenses, dividend efficiency, etc.

Outside IR35: contractor operates as genuinely self-employed via Limited Company. Pays own tax, can claim expenses, draws dividends. End-client pays gross.

Misclassification is what HMRC enforces. Calling someone outside IR35 when the working pattern looks like employment (set hours, supervised, no substitution) is the most common failure mode.

Common IR35 mistakes UK SMBs make

• Letting contractors self-determine (illegal: end-client must determine since 2021)
• Blanket inside-IR35 determinations without role-by-role analysis
• Not issuing SDS before contractor starts
• Not retaining the CEST output as evidence
• Treating contractors like employees in practice (set hours, line management) while claiming outside-IR35

When the small company exemption applies

Small private companies are exempt from IR35 determination duties. 'Small' means meeting two of: turnover under £10.2M, balance sheet under £5.1M, fewer than 50 employees. If you qualify, the contractor's PSC (Personal Service Company) determines status, not you. Most UK SMBs that hire contractors do qualify; check annually as you grow.

Frequently asked questions