UK · Compliance
What is IR35 for a UK recruitment agency?
What off-payroll working rules mean for UK recruitment agencies, clients and contractors, and why the contract label is not enough.
The short answer
IR35 is the UK off-payroll working regime that asks whether a contractor would be an employee of the client if their intermediary were removed. Depending on the client's size and status, the client or intermediary assesses the engagement and the fee-payer may deduct PAYE and National Insurance. A recruitment agency cannot solve IR35 with a label alone.
Key facts
- Core question
- Would the worker be an employee of the client directly?
- Large-client duty
- Client usually makes the status determination
- Evidence
- Actual working practices, not contract wording alone
IR35 is a status assessment, not a tax preference. The answer turns on the reality of control, personal service, mutuality and the wider indicators of employment, and the same contract can produce a different answer if the working practice changes.
For medium and large private-sector clients, the client generally issues a status determination statement and the fee-payer operates PAYE where the engagement is inside IR35. Smaller clients have a different allocation of responsibility, so client size belongs in your intake record.
The agency's job is to collect the determination, pass it through the chain, operate the payroll instruction correctly and avoid making a promise the facts cannot support. A contractor's limited company does not make an engagement outside IR35.
Keep evidence of the assessment and challenge route. A substitution clause that is never usable, or a contractor treated exactly like an employee, weakens the position if HMRC asks questions.
Price both outcomes before presenting the role. The client wants delivery, the worker wants clarity and the agency needs a compliant margin; hiding the tax consequence until the offer stage creates three unhappy parties.
United Kingdom
How this differs across the UK
UK employment law is national, so the rules travel with you. Rates, buyer behaviour and the size of the cash gap do not — here is what changes region by region.
Manchester and the North West
Manchester · Liverpool · Warrington
The same UK-wide conduct and off-payroll rules apply; public sector and NHS framework work adds its own supplier requirements.
The Midlands
Birmingham · Nottingham · Leicester
Labour supply into food, agriculture and shellfish processing is licensed by the Gangmasters and Labour Abuse Authority — check before you place.
Scotland
Edinburgh · Glasgow · Aberdeen
Employment law is reserved and UK-wide, but health and social care staffing is regulated separately in Scotland.
London and the South East
London · Reading · Cambridge
Agency Conduct Regulations and, for umbrella and PAYE contractors, off-payroll rules apply UK-wide, but London's enterprise clients audit compliance hardest.
Local questions
Does this work differently in Manchester and the North West?
The rules are UK-wide, so the compliance answer does not change. The commercial answer does: The same UK-wide conduct and off-payroll rules apply; public sector and NHS framework work adds its own supplier requirements.
Do UK recruitment agencies need a licence?
Most do not. Recruitment and staffing businesses operate under the Conduct of Employment Agencies and Employment Businesses Regulations without a general licence, but labour supply into agriculture, food processing and shellfish gathering requires a Gangmasters and Labour Abuse Authority licence, and healthcare placement carries its own framework and regulatory requirements.
Sources
General information for recruitment and staffing founders, not legal, tax or accounting advice.
Go deeper
How to start a recruitment agency in the UK
Company setup, Conduct Regulations, IR35 and umbrella arrangements, contractor payroll funding and the first-desk decisions that determine whether a UK recruitment agency survives year one.
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