Tech & digital · Agencies · Updated 21 Oct 2026
Direct answer: if your agency is a small company, the freelancer's own limited company decides whether IR35 applies, not you. Once your agency is medium or large, you must make the status decision, issue a Status Determination Statement and, where the work is inside IR35, run the payments through payroll. From April 2025 more agencies count as small, because the size thresholds went up.
IR35 and the off-payroll working rules only apply when a freelancer works through their own limited company (or another intermediary). If a freelancer invoices you as a sole trader, the question is the ordinary one of employment status: are they genuinely self-employed, or an employee in practice? Both questions turn on the same kind of evidence: control, substitution, and whether there's an ongoing obligation to offer and accept work.
Since April 2021, private-sector clients that are medium or large must decide whether each contractor's engagement falls inside IR35 and give them a Status Determination Statement with reasons. If you're small, the responsibility stays with the contractor's own company. A company is small if it meets two of these three tests:
These limits rose from 6 April 2025 (the previous figures were £10.2 million and £5.1 million). Size is judged on your previous financial years, so the change only takes effect for you once your accounts reflect it, and if you're part of a group, the size of the whole group counts.
Write contracts that match how the work actually happens, keep evidence of genuine substitution rights and project-based deliverables, and review long-running freelancers who have quietly become part of the team. Budget for the cost: an inside-IR35 engagement carries employer's National Insurance and the apprenticeship levy where it applies, which changes your margin on that client.
Sources: GOV.UK: off-payroll working rules, IPSE: small business IR35 exemption, Hillier Hopkins: IR35 small company exemption.
This guide is general information, correct at the date shown, and not advice for your specific situation. Rules change, so check the current position before acting.
The rules still apply to the freelancer, but if your agency is small (two of: turnover up to £15 million, balance sheet up to £7.5 million, up to 50 employees), the freelancer's own limited company is responsible for deciding whether IR35 applies, not you.
A written decision, with reasons, on whether an engagement falls inside or outside IR35. Medium and large clients must give one to the contractor and pass it down the supply chain, and must consider any disagreement within 45 days.
No. They cover workers using their own limited company or another intermediary. For sole traders, the normal employment status rules apply, and you still need to be confident they're genuinely self-employed.
The thresholds rose from 6 April 2025, but size is measured on your previous financial years, so for many agencies the change only takes effect from 2026 or later. Check your own year-ends, and remember group size counts.
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