The world of contracting has changed dramatically over the past few years, and nowhere is this more evident than in the IT sector. As businesses lean more heavily on flexible workforces to deliver digital transformation, cybersecurity projects, and software development, thousands of professionals are working as IT contractors.

But one issue continues to dominate conversations in 2025: IR35. This tax legislation has caused uncertainty, confusion, and, let’s be honest, a few sleepless nights for contractors and businesses alike.

In this guide, we’ll explain what IR35 means for IT contractors in 2025, the latest updates you need to know, and how working with a proactive accountant can help you stay compliant while protecting your income.

What is IR35?

IR35 is legislation introduced by HMRC to prevent tax avoidance. It is designed to determine whether a contractor is genuinely self-employed or effectively operating as an employee “disguised” through a limited company.

If you are deemed to fall “inside IR35”, HMRC considers you as an employee for tax purposes. This means you pay Income Tax and National Insurance Contributions (NICs) in the same way as employees, reducing take-home pay.

If you are “outside IR35”, you are seen as genuinely self-employed and can continue to take advantage of tax efficiencies through your limited company.

Why IT Contractors Are Most Affected

The IT sector has one of the highest numbers of contractors in the UK. Roles such as:

• Software developers
• Cloud migration specialists
• Cybersecurity consultants
• Project managers
• Data analysts

…are often delivered on short-term or project-based contracts.

Because contractors frequently work for a single client for months (or years) at a time, the line between “self-employed” and “employee” can become blurred, making IR35 assessments more complex and more frequent.

IR35 in 2025: What’s Changed?

As of 2025, here are the most important updates IT contractors should be aware of:

1. Continued responsibility on medium and large businesses
   Since April 2021, medium and large companies have been responsible for determining whether a contractor falls inside or outside IR35. This continues in 2025, meaning many IT contractors have less control over their IR35 status than before.

2. Small business exemption
   If a client is classed as a “small business” (meeting at least two of: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees), the contractor remains responsible for determining their own IR35 status.

3. Tougher compliance checks from HMRC
   In 2025, HMRC has increased its use of technology and data analytics to review contractor arrangements. This means audits are more targeted, and penalties for non-compliance can be steep.

4. The role of the CEST tool
   HMRC’s “Check Employment Status for Tax” (CEST) tool is still available, but it remains controversial. Many contractors and accountants argue it oversimplifies complex cases, so professional advice is more important than ever.

How to Determine Your IR35 Status

Several factors decide whether you are inside or outside IR35. These include:

• Control: Does the client control when, where, and how you work?
• Substitution: Can you send someone else to do the work in your place?
• Mutuality of obligation (MOO): Is the client obliged to give you continuous work, and are you obliged to accept it?

For example:

• A software developer who works exclusively for one client, reports to a line manager, and has set working hours is likely inside IR35.
• A cybersecurity consultant who can choose their projects, set their own hours, and send a substitute is more likely outside IR35.

The Risks of Getting IR35 Wrong

If HMRC decides you are inside IR35 but you’ve been working as if outside, the consequences can be significant. Risks include:

• Backdated tax and NICs

• Interest and penalties

• Reduced take-home pay

• Damaged client relationships

For IT contractors already facing the challenges of short project cycles and competitive rates, these risks can seriously impact both finances and future opportunities.

How Pro AccX Helps IT Contractors Navigate IR35

At Pro AccX, we work with IT contractors across the UK to simplify the complexity of IR35. Our services include:

• IR35 contract reviews: Assessing your contracts and working practices to identify risks.

• Tax planning advice: Helping you manage income, dividends, and expenses efficiently.

• HMRC compliance support: Ensuring your paperwork, reporting, and filings are correct.

• Cloud-based accounting tools: Giving you real-time visibility of your finances and cash flow.

• Specialist sector knowledge: We understand how IT contracting works in practice—whether you’re on a six-month project in cybersecurity or developing SaaS platforms for multiple clients.

Practical Tips for IT Contractors in 2025

If you’re contracting in the IT sector, here are some pro tips to protect your finances and minimise risk:

• Review every contract carefully — don’t assume terms are the same as your last client.

• Keep evidence of working practices — emails, project notes, and proof of independence matter.

• Consider working with multiple clients — this strengthens your “outside IR35” status.

• Stay updated on legislation changes — rules are evolving, and ignorance isn’t a defence.

• Work with a specialist accountant — generalist advice may not be enough in IT contracting.

The Future of IR35 and IT Contracting

The government has signalled that it will continue to monitor and enforce IR35 rigorously, especially in high-value industries like IT. For contractors, this means greater scrutiny but also opportunities.

As demand for flexible IT expertise continues to rise, particularly in areas like AI integration, cloud systems, and data security, contracting remains an attractive and lucrative career. The key is ensuring your finances and compliance are handled with care.

Final Thoughts

For IT contractors in 2025, understanding and managing IR35 is non-negotiable. Get it right, and you enjoy the freedom and financial benefits of contracting. Get it wrong, and you risk significant tax liabilities and compliance headaches.

At Pro AccX, we specialise in supporting IT professionals with accounting, IR35 reviews, tax planning, and business advice, so you can focus on delivering results for your clients while we keep your finances secure.

Ready to protect your contracting career? Contact Pro AccX today for a free consultation.