IR35 for AI contractors: the parts that actually catch people
7 minute read. Updated 2026-08-08.
Since April 2021, medium and large private-sector clients decide your IR35 status, not you. That decision determines whether you are paid gross through your own limited company or taxed like an employee for that engagement. What catches contractors is a blanket inside determination applied without checking real working practices, or a contract that reads outside IR35 while day-to-day work looks like employment. Get the determination and its reasoning in writing before you price the work.
Who actually decides now
Since April 2021, medium and large private-sector clients determine whether an engagement is inside or outside IR35, not the contractor. Before that date, the contractor's own limited company made the call. That shift moved the risk of getting it wrong onto the client, which is exactly why clients now determine status more cautiously than they used to.
This matters for how you approach a new contract. You are no longer negotiating your tax position directly; you are negotiating around a determination someone else has already made, usually before you are in the room. Ask for it early, ideally before you agree a rate, because the determination changes what that rate is actually worth to you.
Smaller private-sector clients are exempt from making the determination themselves, which leaves the contractor's own company responsible for it in those cases. Check which category a prospective client falls into before you assume who is deciding; do not guess based on how the conversation feels.
The Status Determination Statement
A client determining you inside or outside IR35 has to give you a Status Determination Statement: the conclusion, and the reasoning behind it. Ask to see both. A statement that just says 'inside' with no reasoning tells you the client has not actually assessed your working practices; it is a blanket policy dressed up as a determination.
You have a right to disagree with the determination and to have the client consider your case. Use it if the reasoning does not match how you will actually work. This is worth doing before you sign anything, because disputing a determination after the contract has started is a much harder conversation.
Blanket determinations are common because they are cheap for the client to administer: every contractor on a programme gets the same answer regardless of role. If you are clearly working in a genuinely autonomous, deliverable-based way, a blanket inside determination is worth challenging with specifics, not with a general objection.
Where the mismatch actually catches people
The contract can say whatever it likes; what matters is how the work is actually done. The gap between the two is where most problems start, and it is rarely deliberate. It happens because AI contracting tends to mean embedded work: pairing with a client's engineers, sitting in the same stand-ups, using the same tooling.
A contract with a right of substitution is worthless if, in practice, the client would never accept anyone but you doing the work. A contract describing outcomes rather than hours is worthless if you are actually told which hours to work and how to do the task, not just what the result should be.
Long single-client engagements make this worse over time. A six-month contract that quietly becomes eighteen months, with you sitting in the same seat, attending the same performance conversations as permanent staff, starts to look like the thing IR35 exists to catch, whatever the original contract said.
What it does to your pricing
Inside and outside IR35 are not the same rate wearing two labels; price them differently. An inside determination means you are taxed broadly like an employee for that engagement, usually paid through an umbrella company or the client's payroll, with deductions that substantially reduce what reaches you compared with the headline day rate.
Take the median advertised contract rate for a Machine Learning Engineer, £575 a day, quoted in advertised UK contract rates over the six months to August 2026. At £575 a day for a 20-day month, that is £11,500 before any deductions. Outside IR35, that figure is closer to what you keep, after your own business costs. Inside IR35, umbrella deductions take a substantial share before it reaches you, and none of it includes holiday pay, sick pay or a pension unless you arrange one separately.
If a role comes back inside IR35, that is the moment to renegotiate the day rate upward to reflect the lost benefits and the tax treatment, not to accept the same number you would have quoted outside. Clients budgeting for inside IR35 roles generally expect this.
Get an accountant to check the practice, not just the contract
This is mechanics, not advice: get an accountant or an IR35 specialist to look at how you will actually work, day to day, against both the contract and the Status Determination Statement. A contract reviewed in isolation, without the working practices behind it, tells you very little.
Do this before you sign, particularly if you are running more than one contract at once, if the determination surprises you, or if you disagree with the client's reasoning. It is a much cheaper conversation before the engagement starts than after HMRC asks questions about one that has already run its course.
Specifics like whether to use an umbrella company, how to structure expenses, or what a determination means for your pension planning depend on your own numbers and circumstances. That is exactly the point at which this stops being something a general article can responsibly tell you, and becomes a conversation with someone who has seen your accounts.
Decide before you accept, not after
The determination arrives before you start, so make your decision then: does the rate on offer make sense once you know whether you are inside or outside. Treat the IR35 status question as a standard part of every negotiation, on the same footing as the rate itself.
An inside determination on genuinely embedded, employee-like work is not a mistake to argue away every time; some engagements simply are that. The problem is treating it as an insult and either walking away from otherwise good work, or accepting it at outside-IR35 pricing. Do the arithmetic, price it properly, and decide on the numbers.
What to do about it
- Ask for the Status Determination Statement and its reasoning before you agree a rate, not after.
- Check how the work will actually be done, not just what the contract says.
- Treat inside and outside IR35 as two different rates, not the same number.
- Challenge a blanket determination with specifics about your own role, not a general objection.
- Get an accountant to review your working practices against the determination before you sign.
- Renegotiate upward if a role comes back inside IR35; do not accept an outside-IR35 rate for inside-IR35 terms.
Questions people also ask
Does IR35 apply to every client I contract for?
The 2021 change put the determination in the hands of medium and large private-sector clients. Smaller private-sector clients are exempt from making it themselves, which leaves your own company responsible for the determination in those cases. Check which category a prospective client falls into early, because it changes who is deciding your tax treatment for that contract, and do not assume it from the size of the logo.
Can I dispute an IR35 determination I disagree with?
Yes. The client has to give you a Status Determination Statement with reasoning, and you have a right to have your disagreement considered. Do this before the contract starts if possible, with specific detail about how your working practices differ from what the statement assumes. A general objection rarely moves a client; a specific one about substitution, control or the shape of the deliverable is far harder to wave away.
Should I just accept an inside IR35 determination and move on?
That depends on the rate, not the label. Inside IR35 work is taxed broadly like employment, with deductions that reduce take-home pay, and none of the holiday, sick pay or pension a permanent role would include. Some genuinely embedded work is correctly determined inside, and the right response is to price for it, not to argue against a determination that actually matches how you are working.
What cannot this kind of article tell me?
Anything specific to your own numbers: which structure suits you, how to treat expenses, what an inside determination does to your pension planning, or whether a particular contract's wording holds up. That depends on your accounts and your circumstances, and it is exactly the point at which you need an accountant or an IR35 specialist rather than a general explanation.
Where the figures come from
Every rate and salary quoted in this article is a median or percentile of figures advertised in UK job postings over the six months to 8 August 2026. They are not rates paid, and the gap widens at the top of a range.
- IT Jobs Watch, UK contract rates, 6 months to 8 August 2026, read 2026-08-08.
- IT Jobs Watch, UK permanent salaries, 6 months to 8 August 2026, read 2026-08-08.