What is IR35? A Guide for Care Sector Employers

IR35 explained for care home and children's services employers. What it means for hiring interim registered managers, the 2026 threshold changes, and how Stephen James Consulting handles compliance on every placement.

What is IR35?

IR35 is another name for the off-payroll working rules. The term 'IR35' refers to the press release that originally announced the legislation in 1999. The rules are designed to work out whether a contractor is genuinely self-employed or a 'disguised' employee for tax purposes.

Contractors who set up and work through a limited company enjoy tax efficiency but don't usually receive employee benefits like holiday or sick pay — in exchange they have more flexibility and control over their work. The off-payroll working rules exist to stop arrangements where someone is, in practice, an employee, but is structured as a contractor purely for tax advantage.

A contract is tested as either:

Inside IR35: HMRC treats the engagement as employment, with income tax and National Insurance applied as for an employee
Outside IR35: The engagement is treated as genuine self-employment

Why IR35 Matters Specifically in the Care Sector

Interim management is common in care and children's services. Used to cover unexpected departures, long-term sickness, or to provide stability ahead of a CQC or Ofsted inspection. Because interim registered managers are frequently engaged through limited companies for short, defined assignments, IR35 status is a live issue on almost every interim placement in this sector, not an edge case.

Since the April 2021 reforms, medium and large care providers are responsible for determining the IR35 status of any interim manager they engage through an intermediary, and for issuing a Status Determination Statement (SDS) confirming that decision. Getting this wrong carries real financial exposure. If HMRC later determines a contract was incorrectly assessed as outside IR35, the engaging organisation (not just the contractor) can be liable for unpaid tax and National Insurance.

What's Changing in 2026

Two developments are particularly relevant for care providers using interim management cover this year:

Threshold changes from 6 April 2026. The financial thresholds used to determine whether an organisation counts as "small", and is therefore exempt from IR35 reforms, are increasing. This means some smaller care providers who were previously within scope of IR35 will fall outside the regime for the 2026–2027 tax year. If your organisation's size has changed recently, or you're close to the threshold, it's worth reassessing your IR35 obligations now rather than assuming last year's status still applies.

Increased HMRC scrutiny. HMRC's compliance approach is shifting toward greater use of data analytics and automated risk scoring to identify potential IR35 issues. Organisations are increasingly expected to demonstrate "reasonable care" in how status determinations are made and documented. A verbal or informal assessment is no longer sufficient evidence of compliance.

Umbrella company obligations. New compliance requirements affecting umbrella companies that process payroll on behalf of agencies and clients also take effect from April 2026, which has knock-on implications for how interim placements are structured and who carries liability within the supply chain.

How IR35 Affects the Cost of Interim Management

IR35 status directly affects the cost of engaging an interim manager. A contract correctly assessed as outside IR35 allows the contractor to operate with greater tax efficiency, which can be reflected in their day rate. A contract assessed as inside IR35 means PAYE and National Insurance are applied as though the contractor were an employee, which typically increases the effective cost of the engagement to cover the additional tax burden. Even though the headline day rate may look similar.

This is why getting the determination right matters for budgeting, not just compliance. An incorrect "outside IR35" assessment that's later challenged by HMRC can result in unexpected backdated tax liability, while an overly cautious "inside IR35" assessment can mean paying more than necessary for a genuinely self-employed contractor.

How Stephen James Consulting Handles IR35

We manage IR35 compliance on every interim placement we make, so care providers don't have to navigate this alone. This includes:

Carrying out a Status Determination Statement for each interim engagement, based on the actual working practices of the role. Not just the contract wording.
Ensuring contracts accurately reflect the nature of the engagement, including factors like control, substitution rights, and mutuality of obligation.
Working transparently with umbrella companies and personal service companies, so clients understand exactly how each placement is structured.
Keeping clients informed of legislative changes, including the 2026 threshold and umbrella company changes, that may affect their interim hiring decisions.
Maintaining documentation to support "reasonable care" in every determination, in line with HMRC's expectations.

Frequently Asked Questions

Does IR35 apply to every interim care manager placement?

Not automatically. It depends on the size of the engaging organisation and how the contractor is engaged. Small organisations (under current thresholds) are exempt from the 2021 reforms, meaning the contractor remains responsible for their own status determination. Medium and large organisations are responsible for making the determination themselves.

Who is liable if an IR35 determination is wrong?

For medium and large organisations within scope, liability generally sits with the fee-payer in the supply chain, which may be the end client or an agency, depending on how the engagement is structured. From April 2026, HMRC will also be able to pursue the engaging organisation directly in certain circumstances where the agency in the chain is offshore or otherwise unable to meet the liability.

Does the 2026 threshold change affect us? If your organisation's turnover, balance sheet, or employee numbers are close to the small company thresholds, it's worth checking your status for the 2026–2027 tax year specifically. A provider that was previously "medium" under the old thresholds may now qualify as "small" and fall outside IR35 obligations.

Can an interim manager work through their own limited company?

Yes, and many do. But the engagement still needs a proper status determination if your organisation is within scope of IR35. We handle this as part of every interim placement we manage.

Where can I check employment status myself?

HMRC provides a free tool to help assess status: Check Employment Status for Tax (CEST). We recommend using this alongside professional advice rather than as a sole determining factor, particularly for complex or borderline cases.

Need Interim Cover? We Handle IR35 So You Don't Have To

If you need an interim registered manager or care home manager, we manage the entire IR35 compliance process as part of every placement, so you can focus on stabilising your service, not navigating tax legislation.

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