Recruitment agencies play a specific role in the IR35 supply chain. Understanding their responsibilities and limitations helps contractors navigate the process and avoid misunderstandings.
The agency's role in IR35
Under the current off-payroll rules, the end client is responsible for making the IR35 determination and issuing a Status Determination Statement (SDS). The agency does not make the determination. However, the agency is typically the fee-payer, which means they are responsible for applying the correct tax treatment based on the determination they receive from the end client.
Fee-payer responsibilities
When a contract is determined to be inside IR35, the fee-payer (usually the agency) must calculate the deemed employment payment and deduct income tax, employee NICs, and employer NICs before paying the contractor's limited company or umbrella. The agency is liable for these deductions even if the end client's determination later turns out to be incorrect, unless the agency took reasonable care in applying the determination.
Challenging a determination
If you disagree with the end client's IR35 determination, you have the right to challenge it. The client must respond within 45 days with either a revised determination or confirmation of the original decision with reasons. The agency cannot override the client's determination, but they can facilitate the challenge process. Keep all correspondence in writing and maintain records of your actual working practices.
Choosing the right agency
Work with agencies that understand IR35 and are transparent about the determination process. Good agencies will tell you the IR35 status upfront before you invest time in interviews. They will also ensure the end client has made an individual assessment rather than applying a blanket determination. Avoid agencies that are vague about IR35 status or pressure you to accept inside IR35 terms without a proper SDS.