IR35 Compliance | Are you really IR35 compliant?
IR35 used to be seen as a contractor problem. Not anymore.
Since the off-payroll reforms, responsibility (and liability) has shifted firmly onto medium and large end-clients and fee-payers in most cases. If HMRC later decides your determinations were wrong, you could be facing:
Backdated Income Tax and National Insurance
Interest on late payments
Additional penalties, depending on behaviour
Investigations going back several years in some scenarios
On top of that, IR35 non-compliance can damage your reputation with contractors, clients and HMRC – leading to lost business and future opportunities.
An IR35 audit is how you get ahead of those risks.
What is an IR35 audit?
An IR35 audit is a structured review of how your organisation engages and manages contractors, with one goal: to test whether your IR35 decisions and processes stand up to scrutiny.
A robust audit typically looks at:
Your current contractor population and engagement models
Contracts and working practices vs IR35 criteria
How Status Determination Statements (SDS) are created, documented and communicated
How you evidence “reasonable care” in your assessments
How responsibilities are split between HR, Procurement, Legal, Finance and hiring managers
The outcome is a clear picture of where you’re compliant, where you’re exposed – and what to fix.
The real risks of getting IR35 wrong
IR35 isn’t just “another policy”. It carries serious consequences if you mis-classify contractors or can’t demonstrate reasonable care.
If HMRC finds you’ve treated inside-IR35 roles as outside, you may be liable for:
Unpaid employment taxes – backdated Income Tax and employer NICs
Interest – calculated from when the tax should have been paid
Penalties – which can reach 30–100% of the unpaid tax, depending on whether behaviour is careless or deliberate
Beyond the numbers, there are non-financial consequences:
Reputational damage in the press and contractor community
Increased scrutiny from HMRC in other areas
Distracted leadership and legal costs while you firefight investigations
IR35 cases in the public sector have already led to multi-million-pound settlements – a clear warning of what’s at stake.
What a good IR35 audit should cover
A meaningful IR35 audit goes beyond checking a few contracts. It should:
1. Map your current contractor landscape
Identify who is engaged, through what route (PSC, umbrella, agency), in which teams and on what terms. This baseline is essential for spotting patterns and risk hot-spots.
2. Review contracts and working practices
HMRC look at how people actually work, not just what the contract says. A good audit compares:
Substitution, control and mutuality of obligation in reality
On-site vs remote expectations
Hours, supervision and integration with permanent staff
3. Assess your SDS process and “reasonable care”
You need to show that your determinations are systematic, consistent and documented – not guesswork. The audit should check:
Who completes determinations and how they’re trained
What tools and guidance you use
How decisions and rationales are recorded and revisited
4. Highlight gaps, quick wins and priorities
Finally, the audit should translate findings into a clear action plan: immediate fixes, medium-term improvements and any structural changes needed to stay compliant.
How Vermelo’s IR35 audit supports you
On the Vermelo page, you’re invited to request a free IR35 compliance audit – focused specifically on helping you understand whether you’re at risk of costly non-compliance.
Vermelo’s IR35 audit approach is designed to:
Clarify your risk – by reviewing where you may be exposed to backdated tax, NI, interest and penalties
Test your processes – including SDS workflows, documentation, governance and “reasonable care”
Support practical change – translating findings into concrete steps for HR, Procurement, Finance and hiring managers
You also have the option to speak directly with Vermelo’s IR35 expert, Kathryn, for deeper guidance on what the findings mean for your organisation.
When should you prioritise an IR35 audit?
You should move IR35 up the agenda if:
You’ve grown your contractor population since the reforms
Different teams handle contractors in different ways
You’re not confident in how SDSs are created or stored
You’ve inherited legacy contractor arrangements from before April 2021
Leadership is asking, “Are we definitely safe on IR35?”
If even one of these rings true, an IR35 audit gives you much-needed visibility – and a plan – before HMRC comes knocking.
Download the IR35 Non-Compliance Risks Fact Sheet
Do you know the risks to IR35 non-compliance? Download our useful “Why you need an IR35 Audit” factsheet to give stakeholders a concise, shareable overview of:
The financial and reputational risks of IR35 non-compliance
How backdated tax, NI, interest and penalties can escalate
Why “reasonable care” and strong SDS processes matter
How Vermelo’s free IR35 audit helps you identify and address gaps
Let’s check you are IR35 compliant
Book a 15‑minute discovery call or contact Santa Benga - santa.benga@VermeloRPO.com | 07304 094171