Who issues the Status Determination Statement?

The end client when they're medium or large in the private sector, or any size in the public sector. They must give it to the contractor and any agency in the chain, with reasoning, and operate a disagreement process if challenged.

Does using CEST guarantee HMRC will accept the result?

HMRC says it will stand by the CEST result if the answers honestly reflect the working arrangement. If the actual day-to-day differs from what was answered, the result is not protected.

Does an outside-IR35 result mean I never pay Class 1 NI?

Correct — outside IR35 means the company invoices gross. Anita pays Corporation Tax on profits, then takes salary (PAYE/NI within the personal allowance) and dividends taxed at dividend rates with no NI.

Worked Examples

Example: Applying CEST to an IR35 Status Decision

A practical IR35 example: a freelance developer engaged via her PSC by a fintech client. We walk through the CEST factors that determine whether the engagement is inside or outside IR35.

4 min read·Updated 10 November 2026

Quick answers

How do you decide if a contract is inside or outside IR35?

Apply HMRC's CEST tool. The strongest factors are: a genuine right to substitute the worker, control over what/how/when/where the work is done, mutuality of obligation, financial risk, equipment ownership and whether the contractor works for multiple clients. No single factor decides — judges look at the whole picture.

Scenario

Anita Patel runs AP Code Ltd (her own PSC). In May 2025 she signs a 6-month contract via an agency to deliver a payments microservice for NorthBank, a medium-sized fintech with 220 employees and £40m turnover. NorthBank is therefore a medium/large client and must determine status.

NorthBank issues a Status Determination Statement before Anita starts work.

Contract terms

Day rate £650, project deliverables defined in a statement of work
Milestones at weeks 4, 12 and 24 — payment on milestone sign-off
Substitution clause permitted with NorthBank's reasonable approval and equivalent skills
Anita uses her own laptop, GitHub and AWS account; works from home with optional office days
No notice period for either party other than for material breach
AP Code carries £2m PI insurance

Step 1: Personal service / substitution

The contract allows substitution with reasonable approval. Anita has used her associate Liam as a substitute on previous contracts. Both Anita and Liam carry equivalent CVs.

Illustrative status factor: substitution exists in practice → strong indicator of outside IR35.

Step 2: Control

Factor	Position
What	Defined in SoW (the deliverable) — Anita controls the design
How	Anita decides architecture, libraries, tooling
When	Anita sets her own hours; deadlines tied to milestones
Where	Mostly home; occasional office days at her option

Illustrative status factor: low control by client → indicator of outside IR35.

Step 3: Mutuality of obligation (MoO)

The contract is project-based with no obligation on NorthBank to offer further work after the deliverables are accepted
Anita is not obliged to accept additional work outside the SoW
Payment is milestone-driven, not "for time"

Illustrative status factor: no continuing MoO → indicator of outside IR35.

Step 4: Other factors

Financial risk: Anita is on a fixed-price milestone basis. If the deliverable misses a milestone, she's not paid. → outside indicator
Equipment: Anita uses her own laptop and licences → outside indicator
Integration: not on the org chart, no email signature, no internal benefits → outside indicator
Multiple clients: AP Code has two other current clients → outside indicator
Part and parcel: Anita doesn't manage NorthBank staff and doesn't represent NorthBank externally → outside indicator

Step 5: SDS conclusion

NorthBank's Status Determination Statement concludes outside IR35, supported by:

"Substitution right used in practice, milestone-based payment with financial risk, contractor controls how the work is delivered, contractor uses own equipment and works on multiple concurrent engagements."

Step 6: Tax treatment

Because the engagement is outside IR35:

AP Code invoices the agreed milestone amounts plus applicable VAT; the £650 day rate is the pricing assumption used to agree those amounts
NorthBank's agency pays AP Code in full (no PAYE/NI deducted)
AP Code pays Corporation Tax on profits (25% main rate or 19% small profits)
Anita extracts profit through a low salary + dividends — and pays Self Assessment on the personal income

What would change the outcome?

If the SoW were replaced with a "we need a developer for 6 months at £650/day to be assigned to whatever the team is working on", with Anita on the org chart, attending stand-ups daily, with no substitution in practice, the status assessment could change; the client must assess all actual terms and working practices.

General guidance, not tax advice. Speak to a qualified accountant for advice tailored to your situation. Figures relate to the 2025/26 UK tax year. Source: HMRC, gov.uk.

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