If you run an insurance brokerage or work in financial services, you've probably heard IR35 mentioned in conversation. Perhaps a colleague mentioned it over coffee. Perhaps you've felt a vague sense that it's important but remained uncertain about what it actually means for your business. That's understandable. IR35 is genuinely complicated, and the stakes are real.
The off-payroll working rules, formally known as IR35, exist to prevent contractors from dodging income tax and National Insurance contributions. Since April 2021, when the rules tightened for private sector businesses, the responsibility for determining someone's employment status has shifted away from the contractor and onto the firm engaging them. That responsibility sits with you.
In 2026, as we move further into this regulatory framework, the rules haven't fundamentally changed, but HMRC enforcement has become more sophisticated. The tax authority has invested in data analytics and is actively pursuing businesses that get this wrong. For insurance brokers and financial advisers, the risk is particularly acute because your sector frequently uses specialist contractors.
Why Insurance Brokers Are in the Firing Line
Consider a typical scenario. Your firm needs a claims specialist for a three-month project handling a spike in professional indemnity claims. You bring in a contractor who's worked in the market for fifteen years. They invoice you weekly. They work from your office. They attend your team meetings. They use your systems and follow your procedures.
Under IR35, that contractor is almost certainly "inside" the rules, meaning they should be treated as an employee for tax purposes. Your firm would need to operate PAYE, deduct income tax and National Insurance, and pay employer contributions. If you've been treating them as a simple contractor, paying their invoice and issuing a P600 form at year end, HMRC would view this as non-compliance.
The financial penalty? We're talking unpaid tax, interest, and potential penalties ranging from 20% to 100% of the underpaid tax. For a contractor earning £50,000 over several months, that could easily exceed £15,000 in additional costs landing on your firm's shoulders.
Insurance brokers face this risk more than many sectors because you regularly need flexible specialist expertise. Underwriting support, regulatory compliance expertise, data analysts for claims management, financial modelling specialists. These roles attract contractors. And that's where the compliance risk intensifies.
The Key Test: Is Someone Inside or Outside IR35?
HMRC uses what it calls the "employment status indicator" test. There's no single factor that determines status. Instead, HMRC looks at the overall picture of the working relationship across several dimensions.
Control matters. If the contractor decides when they work, how they work, and what tools they use, that points toward them being outside IR35. If your firm controls these things, they're inside. Someone working from your office between 9am and 5pm, following your processes, answering to your managers - that's control. Someone who works flexibly, manages their own schedule, and potentially serves multiple clients simultaneously - that's less control.
Mutuality of obligation is another factor. Do you have an obligation to offer work? Does the contractor have an obligation to accept it? If either of these is absent, they're more likely to be outside IR35. A contractor you phone when you need them, who can decline work, suggests genuine self-employment. Someone who has a standing expectation of available work suggests employment.
Personal service is critical. Can the contractor send a substitute if they're ill or busy? If yes, that points outside IR35. If your firm specifically needs this person and won't accept a substitute, that's a sign they're inside IR35.
Integration into the business matters too. Does this person function as part of your team or as an external service provider? Someone integrated into your organisational structure, attending team meetings, included in internal communications, given company equipment - these factors suggest employment status.
A Practical Example from Financial Services
Imagine your firm engages a regulatory compliance specialist for six months to prepare for an FCA audit. Let's walk through the assessment.
Control: Your compliance team sets their priorities. You decide which documents they review first. You schedule their meetings with the FCA. That's your control. Inside IR35.
Mutuality: You've committed to six months of work. They've committed to be available during that period. Strong mutual obligation. Inside IR35.
Personal service: You specifically hired this person for their expertise. They can't send a substitute. Inside IR35.
Integration: They sit in your office, attend your risk committee meetings, access your systems. Inside IR35.
The assessment is clear. Even though they're contracted on a six-month basis, they should be on PAYE. Your firm is responsible for ensuring this happens.
What You Should Do Right Now
First, conduct an audit of your current contractors. List everyone who's not on your payroll but works regularly for your firm. Assess their status honestly using the factors outlined above.
Second, document your reasoning. If you decide someone is outside IR35, write down why. If they're inside, get them onto PAYE immediately. HMRC cares about process and evidence. A documented decision based on clear thinking is your best defence if they ever investigate.
Third, use HMRC's Check Employment Status for Tax tool, known as CEST. It's free, it's online, and it's designed for exactly this purpose. Feed in the details of your working arrangement. The tool will give you a preliminary indication of status. It's not binding on HMRC, but it shows you've made a reasonable attempt to comply.
Fourth, consider your contracts. Do they need updating to reflect your assessment? If someone is outside IR35, your contract should protect you by confirming they're responsible for their own tax, they can work for competitors, and they can send a substitute. These contractual terms matter to HMRC.
Finally, get professional advice. A tax advisor who understands your sector is worth the cost. They can review specific arrangements and give you confidence you're compliant. That's money well spent compared to the cost of getting it wrong.
The 2026 Perspective
As we head into 2026, HMRC's compliance activity continues to intensify. They're targeting sectors they know use contractors heavily. Insurance and financial services are on that list. The agency has recovered millions in unpaid tax from businesses that misclassified workers.
The message is simple: if you're using contractors, take IR35 seriously. Assess honestly. Document your reasoning. Get advice if you're uncertain. The cost of being wrong is substantial.
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