IR35 Myths and Misconceptions

Why IR35 Myths Refuse to Die

IR35 has been around for decades, yet misinformation about it remains stubbornly persistent.

That’s partly because IR35 is:

• Complex

• Poorly communicated

• Emotionally charged

But it’s also because myths are comforting. They simplify uncertainty, even when they’re wrong.

This article tackles the most common IR35 myths and explains what actually matters instead.

Myth 1: “HMRC Always Win IR35 Cases”

This is one of the most damaging myths.

In reality, HMRC loses or withdraws from many IR35 cases. Courts regularly reject poorly argued positions, especially where working practices support independence.

Why the myth persists:

• High-profile cases attract attention

• Settlements are quieter than losses

• Contractors share fear more than nuance

The truth: case law still matters, and HMRC does not have automatic authority.

Myth 2: “IR35 Is Just About Tax”

Tax is the outcome, not the test.

IR35 is fundamentally about:

• Employment status

• Control and obligation

• Commercial risk

Tax treatment follows status, not the other way around.

Contractors who focus only on tax often miss the factors that actually influence decisions.

Myth 3: “If My Contract Says Outside IR35, I’m Safe”

Contracts matter. They are not decisive.

HMRC will always ask:

• Does the contract reflect reality?

• Do working practices match the clauses?

A strong contract can support a case. A weak or misleading one can undermine it.

But neither replaces evidence of how the engagement actually operates.

Myth 4: “Long Contracts Are Automatically Inside IR35”

Length alone does not determine status.

Some genuinely independent contractors work on:

• Long programmes

• Multi-year transformations

• Ongoing specialist roles

What matters is whether the nature of the relationship resembles employment, not how long it lasts.

Long contracts with defined scopes and autonomy can still sit outside IR35.

Myth 5: “Using an Umbrella Means IR35 Doesn’t Apply”

Umbrella companies don’t bypass IR35. They sit downstream of it.

IR35 status is still assessed at the engagement level. Umbrellas simply provide a PAYE employment structure when a role is inside IR35.

Confusing umbrellas with compliance creates false security or unnecessary resentment.

Myth 6: “Only Low-Skilled Contractors Are Inside IR35”

Skill level is not decisive.

Highly skilled specialists can be inside IR35 if:

• They are tightly controlled

• They integrate deeply into teams

• They carry little commercial risk

Equally, less technical roles can sit outside IR35 if structured properly.

HMRC assesses relationships, not prestige.

Myth 7: “If I Pass CEST, I’m Protected”

CEST outcomes are not legally binding.

While CEST can provide insight, it:

• Depends entirely on input accuracy

• Often struggles with nuance

• Is not determinative in tribunals

Relying solely on tool, without understanding context, is risky.

Myth 8: “IR35 Will Be Scrapped Soon”

IR35 has survived:

• Multiple governments

• Public criticism

• Policy reviews

While reforms and tweaks are possible, assuming IR35 will disappear is speculative and risky planning.

Myth 9: “IR35 Only Affects Contractors”

IR35 affects:

• Clients

• Agencies

• Payroll providers

Contractors feel the impact most directly, but they are not the only stakeholders.

Understanding this broader impact helps explain conservative behaviour elsewhere in the supply chain.

Why These Myths Matter

Believing IR35 myths leads to:

• Poor decisions

• Unnecessary fear

• Missed opportunities

• Weak negotiations

Worse, myths distract from what actually matters: working practices, evidence, and clarity.

A Better Mental Model for IR35

Instead of collecting rules and myths, ask:

Does this engagement make sense as a business-to-business relationship?

If it does, IR35 becomes a manageable compliance issue, not an existential threat.