The IR35 legislation has long been a source of concern and debate for UK businesses, contractors, and intermediaries. Designed to prevent disguised employment, IR35 ensures that contractors working through personal service companies (PSCs) pay the appropriate levels of tax and National Insurance contributions (NICs). Over the past few years, the responsibility for determining IR35 status has shifted more heavily onto businesses, particularly medium and large organisations.

As 2025 approaches, HMRC has signalled a renewed focus on compliance checks to ensure that businesses are not misclassifying workers. For employers, agencies, and contractors alike, preparation is essential. An HMRC IR35 check can be daunting, but with proper planning and processes in place, businesses can minimise risks, maintain compliance, and avoid unnecessary penalties.

In this article, we’ll explore how businesses can prepare for HMRC IR35 checks in 2025, the key areas HMRC looks at, and the steps organisations can take to stay compliant. We’ll also highlight how payroll experts like The Infinity Group can support businesses in navigating these complexities.

Understanding HMRC IR35 Checks

An HMRC IR35 check is essentially an investigation into whether businesses are correctly assessing the employment status of their contractors. These checks assess:

• Whether the business has a clear process for determining IR35 status.
• Whether reasonable care has been taken when assessing contractors.
• Whether the business holds adequate documentation to support its decisions.
• Whether any unpaid tax or NICs are owed due to misclassification.

HMRC may launch an IR35 check randomly, but in many cases, checks are triggered by inconsistencies in payroll data, tip-offs, or patterns of behaviour that raise red flags.

Why HMRC IR35 Checks Matter in 2025

The government has made it clear that tax compliance is a priority. With growing pressure to close the tax gap, HMRC has increased its scrutiny of contractor arrangements. For businesses, this means:

1. Financial Penalties – Misclassification can lead to significant backdated tax bills, interest, and fines.
2. Reputational Risk – Being flagged for non-compliance can harm a company’s image in the market.
3. Operational Disruption – HMRC checks can divert internal resources away from day-to-day business.

Preparing early for IR35 checks ensures businesses avoid costly disruptions and remain compliant in the eyes of HMRC.

Steps Businesses Can Take to Prepare

1. Review All Contractor Engagements

The first step is to conduct a comprehensive review of your existing contractor arrangements. Businesses should:

• Identify all contractors working through limited companies or PSCs.
• Check whether each role has already been assessed for IR35 status.
• Ensure that any assessments carried out previously are still valid and reflect current working practices.

2. Use Reliable IR35 Assessment Tools

HMRC’s own Check Employment Status for Tax (CEST) tool is one option, but it has been criticised for oversimplifying complex cases. Many businesses now use independent assessment tools combined with expert advice to provide a more accurate picture. The important thing is to ensure the process shows reasonable care, as HMRC will scrutinise how decisions were made.

3. Keep Documentation in Order

Clear and thorough record-keeping is vital. Businesses should maintain:

• Copies of all IR35 assessments.
• Evidence of the process used to reach decisions.
• Written contracts and any amendments made to reflect actual working practices.
• Records of reviews and audits carried out.

Documentation will be a business’s best defence if HMRC challenges an assessment.

4. Align Contracts with Actual Working Practices

One of the biggest pitfalls businesses fall into is having contracts that don’t match how contractors actually work. For example, a contract may state that a contractor has the right to provide a substitute, but in practice, substitution is never allowed. HMRC will always look beyond the contract to how the work is performed in reality.

5. Train Managers and HR Teams

Managers who engage contractors must understand IR35 rules. Training HR teams, payroll staff, and hiring managers can ensure consistency in how contractors are engaged and assessed. This reduces the risk of errors slipping through the cracks.

6. Conduct Regular IR35 Audits

Compliance should never be a one-time exercise. Businesses should schedule periodic audits of their contractor arrangements to ensure that:

• Contractors’ roles haven’t drifted into employee-like working arrangements.
• Any changes in working practices are reflected in updated assessments.
• All documentation remains accurate and up to date.

7. Seek Expert Guidance

For many businesses, IR35 is simply too complex to handle in-house. Partnering with payroll and compliance experts can help mitigate risks. Firms like The Infinity Group provide tailored support, including:

• Conducting status assessments.
• Managing payroll for contractors inside and outside IR35.
• Ensuring HMRC compliance across the board.

By outsourcing IR35 compliance to experts, businesses can save time, reduce risks, and focus on their core operations.

Common Triggers for HMRC IR35 Checks

Being aware of what might attract HMRC’s attention can help businesses avoid unnecessary scrutiny. Some common triggers include:

• A high number of contractors working under similar terms.
• Contractors who have worked with the same client for years without reassessment.
• Inconsistencies between tax returns and payroll submissions.
• Lack of documentation to prove “reasonable care” was taken.

Proactively addressing these issues is key to reducing the likelihood of a check.

What to Do If HMRC Launches an IR35 Check

If HMRC initiates a compliance check, businesses should:

1. Stay Calm – HMRC checks are not always an indication of wrongdoing.
2. Respond Promptly – Delays in providing requested information can escalate matters.
3. Provide Evidence – Supply documentation that shows IR35 decisions were made with reasonable care.
4. Seek Professional Support – Involve compliance experts or payroll providers like The Infinity Group to guide you through the process.

Looking Ahead: IR35 Compliance in 2025

The IR35 landscape continues to evolve. Businesses should expect:

• Increased Digital Scrutiny – HMRC is using data analytics to flag inconsistencies more effectively.
• Tighter Compliance Expectations – Demonstrating “reasonable care” will be more important than ever.
• Continued Contractor Demand – Despite the risks, many businesses will continue to rely on contractors for flexibility, making compliance a long-term priority.

Preparing now ensures businesses will not only avoid penalties but also maintain strong relationships with contractors by handling IR35 matters fairly and transparently.

Conclusion

HMRC IR35 checks are an unavoidable reality for UK businesses in 2025. The risks of non-compliance—financial penalties, reputational damage, and operational disruption—are too significant to ignore. However, by reviewing contractor arrangements, using reliable assessment tools, keeping thorough documentation, and seeking expert guidance, businesses can face HMRC checks with confidence.

Partnering with specialists such as The Infinity Group provides additional assurance, helping businesses navigate complex legislation and maintain full compliance. As IR35 continues to shape the contractor landscape, preparation and proactive management will be the keys to success.