CIS Tax · IR35 & Off-Payroll · 2026/27
CIS decides how tax is collected. IR35 decides whether someone working through their own company should be taxed like an employee. Where IR35 applies, it wins, and from 6 April 2026 the rules on who decides changed for thousands of clients.
By QuoteDone Editorial Team · Last updated: 25 September 2026 · Checked against GOV.UK and HMRC manuals
If a contractor has asked whether your company is "outside IR35" and you were not sure how that fits with CIS, you are not alone. The two are often confused in construction, because CIS gives many limited-company subcontractors the impression that their tax is already sorted.
It is not that simple. CIS is a collection mechanism. IR35 is a status test for people who work through their own company. They answer different questions, and where both could apply, IR35 comes first.
CIS vs IR35: Side by Side
| CIS | IR35 (off-payroll working) | |
|---|---|---|
| What it is | A scheme for deducting tax from construction payments | A test of whether someone would be an employee without their own company |
| Who it covers | Sole traders, partnerships and companies doing construction work | Only people working through an intermediary, usually their own limited company |
| Rates | 0% (gross payment status), 20% (registered), 30% (unmatched) | If inside: Income Tax and National Insurance as for employment |
| If both could apply | Does not apply to that payment | Takes priority, and PAYE is operated |
| Sole traders | Yes | No: the question is employment status instead |
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Why IR35 Comes Before CIS
The off-payroll working rules take priority over CIS. When they apply, the person paying your company (the "fee-payer") treats the payment as if it were employment income paid to you: a deemed direct payment. According to HMRC's manual, it is worked out as follows:
- Start with the payment the fee-payer makes, excluding VAT.
- Take off the direct cost of materials your company supplied.
- Optionally take off certain expenses that would have been deductible if you were an employee.
- What is left is taxed like salary. PAYE Income Tax and National Insurance are operated on it.
Source: HMRC – ESM10028 How to calculate the deemed direct payment.
Who deducts what: £5,000 labour invoice from your limited company
The PAYE amount depends on your tax code and other income, so it is not a flat percentage. The fee-payer can deduct your tax and employee National Insurance from the payment; employer National Insurance is the fee-payer's own cost.
Who Decides Your IR35 Status?
It depends on the size of the end client, the business your work is ultimately for.
| End client | Who decides | What you get |
|---|---|---|
| Medium or large (private sector) | The client | A Status Determination Statement (SDS) with reasons |
| Public sector body | The client | A Status Determination Statement |
| Small (private sector) | Your own company | No SDS: your company assesses status and accounts for any tax itself |
What changed on 6 April 2026
A company is "small" if it meets at least two of three tests. The limits rose from 6 April 2026:
| Test | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| Turnover | No more than £10.2 million | No more than £15 million |
| Balance sheet total | No more than £5.1 million | No more than £7.5 million |
| Employees | No more than 50 | No more than 50 (unchanged) |
What Decides Whether You Are Inside or Outside
The same factors that decide employment status for a sole trader drive IR35, applied as if your company did not exist:
- Control: does the client decide how, when and where you do the work?
- Personal service: could your company genuinely send someone else?
- Mutual obligation: since the Supreme Court's 2024 PGMOL ruling, the basic obligation of work for pay in a single engagement is enough, so this factor rarely helps on its own.
- Financial risk, equipment and being in business on your own account complete the picture.
IR35 is assessed engagement by engagement, so the same person can be inside on one contract and outside on another.
Disagree With Your Status Determination Statement?
- Read the reasons. An SDS must explain how the client reached its conclusion.
- Compare them with how you really work. Note where the SDS gets control, substitution or your equipment wrong.
- Use the client's disagreement process. Medium and large clients must have one. Put your case in writing with evidence.
- Wait for the client's response. They must either confirm or change the decision and explain why.
- Keep everything. The SDS, your challenge, the reply and your contract.
Source: GOV.UK – Understanding off-payroll working (IR35).
Checklist for Limited-Company Subcontractors
- For each client, find out whether they are small, medium or large under the April 2026 limits
- From medium and large clients, get an SDS before you start and keep it
- For small clients, assess each engagement yourself and keep a written record
- Use HMRC's CEST tool honestly and keep the result, running it again if arrangements change
- Make sure contracts describe how you really work
- Keep CIS statements and IR35 paperwork in separate files
- Get specialist advice before signing a contract you are unsure about
Frequently Asked Questions
Does being registered for CIS protect me from IR35?
No. CIS is a way of collecting tax from construction payments. IR35 decides whether someone working through their own company would be an employee without that company. Where the off-payroll rules apply, they take priority over CIS, and the payment goes through PAYE instead.
Does IR35 apply to CIS sole traders?
No. IR35 only applies where you work through an intermediary, usually your own limited company. As a sole trader, the question is your employment status: whether you are genuinely self-employed or really an employee.
Who decides IR35 status on a construction contract?
If the end client is medium or large, the client decides and must give you a Status Determination Statement with its reasons. If the client is small, your own company decides under the original IR35 rules.
What counts as a small client for IR35?
A company is small if it meets at least two of three tests. From 6 April 2026, the limits are turnover of no more than £15 million, a balance sheet total of no more than £7.5 million, and no more than 50 employees.
Does CIS still apply if my contract is inside IR35?
No, not to the same payment. Where the off-payroll working rules apply, the fee-payer treats the payment as employment income and operates PAYE and National Insurance, so a CIS deduction is not made on it.
Can I disagree with a Status Determination Statement?
Yes. Medium and large clients must have a process for disagreements. You can challenge the determination and give your reasons, and the client must reply, either confirming or changing its decision and explaining why.
Can I be inside IR35 on one contract and outside on another?
Yes. IR35 is assessed engagement by engagement. The same person can be outside on a job with genuine control over their work and inside on another where they are directed like an employee.
Important: This article is general information about IR35 and CIS, not tax or legal advice. IR35 status depends on the facts of each engagement and the size of the end client. Always verify against GOV.UK or speak to an IR35 specialist or qualified accountant before signing a contract.
Author: QuoteDone Editorial Team · Last updated: 25 September 2026
Sources: GOV.UK – Understanding off-payroll working · HMRC – ESM10028 · HMRC – ESM10021 · GOV.UK – CEST
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