​Inside or Outside Ir35? How Aerospace Hiring Managers Can Make the Right Call

For UK aerospace employers, IR35 is no longer a theoretical tax issue or something managed at arm’s length by contractors. Since the private sector reform, the responsibility for determining IR35 status sits firmly with the hiring organisation.

For hiring managers, programme leads and engineering leaders, the question is practical: should this role be inside or outside IR35, what are the risks of getting that call wrong, and how do you structure roles that are workable for both delivery and talent attraction?

This guide assumes familiarity with the basics of IR35 and focuses on how aerospace employers can make defensible, realistic decisions.

A Brief IR35 Timeline

IR35 has existed for more than two decades, originally introduced to address tax avoidance through the use of intermediary companies, but its impact on employers has changed significantly over the last few years.

In 2017, responsibility for determining IR35 status shifted to the public sector. In April 2021, the same rules were extended to medium and large private sector businesses. From that point onwards, most aerospace and defence organisations became responsible for assessing roles, issuing a status determination statement, and managing any disputes.

Since then, enforcement activity has increased and guidance has continued to evolve. While there have been adjustments, including changes designed to reduce double taxation, the underlying position is stable: the rules apply, and the end client carries meaningful responsibility and risk.

What an IR35 Determination Is Actually Assessing

An IR35 assessment is not about what outcome is preferred. It is rooted in tax legislation and focuses on whether a contractor operating through their own limited company would, in substance, be viewed as a permanent employee for tax purposes if that company did not exist.

HMRC assesses this by considering a hypothetical contract that reflects the real relationship between the parties. This means written terms matter, but they are secondary to actual working practices on site.

Where a role looks like disguised employment, with contractors effectively acting as disguised employees rather than a genuine contractor operating independently, it should be treated as inside IR35. Where it reflects the engagement of an independent business providing services, it may be capable of sitting outside IR35.

When Aerospace Roles Are Typically Inside IR35

Some aerospace roles are correctly classed as inside IR35, even when delivered by highly skilled contractors. Common indicators include:

· Roles embedded within engineering teams, working alongside permanent staff

· Fixed hours or shift patterns set by the client

· Close supervision or task-by-task direction, mirroring how a permanent employee is managed

· Long-running engagements providing ongoing BAU support, with an expectation of continuity and availability

· Security-cleared roles where a specific individual is required and substitution is not realistic

Treating these roles as inside IR35 is often the correct and defensible decision. The challenge is making them commercially viable for contractors.

When Aerospace Roles Can Sit Outside IR35

Outside IR35 roles do exist in aerospace, but they need to be structured deliberately. Common characteristics include:

· Project-based engagements with defined deliverables, milestones and a clear end point

· Contractors engaged for specialist expertise, with autonomy over how work is delivered

· A genuine right of substitution that is practical and exercisable

· Exposure to financial risk, such as responsibility for correcting defective work

· Evidence that the contractor operates on their own account, often working with multiple clients

In practice, these arrangements often suit specialist analysis, consultancy, design packages or time-bound problem-solving work. Outside IR35 should be the result of role design and working arrangements, not an assumption applied to attract candidates.

The Cost and Risk of Getting the Decision Wrong

Incorrect IR35 determinations carry real consequences for aerospace employers.

If a role is assessed as outside IR35 and later overturned, the deemed employer can become liable for unpaid income tax and national insurance contributions, interest and penalties. On high-value programmes, this exposure can exceed 50 percent of total contractor costs, applied retrospectively.

Failure to take reasonable care or misalignment between contracts and reality can shift liability back to the end client, who remains responsible for the decision even where agencies are involved. Blanket determinations, while often adopted to reduce perceived risk, do not meet the reasonable care requirement and frequently lead to higher costs, delivery disruption and reduced contractor supply. Beyond financial exposure, incorrect decisions damage contractor confidence and restrict access to scarce skills.

Mistakes Aerospace Employers Can Make

Common pitfalls include:

· Over-reliance on written contracts. Where day-to-day working arrangements do not reflect the contract, HMRC will prioritise reality over wording, particularly if contractors are treated in the same way as employees.

· Employee-style treatment on site. Providing company uniforms or staff-branded PPE, issuing standard company email addresses, placing contractors on internal rotas, or requiring attendance at staff briefings and appraisals all strengthen the impression of disguised employment.

· Failure to reassess evolving roles. A contractor may start on a defined project but gradually move into ongoing support, changing the IR35 status without a formal review.

· Poor handling of disputes. Underestimating the reputational impact of an unfair or opaque challenge process can damage contractor trust in a tight labour market.

Making Inside IR35 Roles Workable for Contractors

Not every role can or should be outside IR35. Where a role is correctly inside IR35, hiring managers still have options:

· Be explicit about IR35 status from the outset. Clear communication avoids misunderstandings around employment rights such as holiday entitlement or sick pay, which do not apply to contractors even when roles are inside IR35.

· Set rates that reflect the true cost of engagement. Inside IR35 roles need to account for income tax and national insurance, rather than assuming contractors will absorb the difference.

· Define scope, duration and authority clearly. Contractors are more likely to accept inside IR35 roles that are well-defined, time-limited and aligned to delivery outcomes, rather than open-ended support.

· Choose supply chain partners carefully. Working with umbrella companies, often via a recruitment agency, is common, but transparency around deductions and payment structure has a direct impact on contractor confidence.

IR35 as a Talent and Delivery Decision

In aerospace, IR35 determinations are not made in isolation. Skills shortages across MRO, systems engineering, avionics and defence programmes mean access to contractors remains critical.

Organisations that approach IR35 as a role-design and engagement issue, rather than a box-ticking exercise, are better placed to attract experienced contractors and maintain delivery momentum.

Making the right call is about aligning compliance, commercial reality and the way work is actually done.

How Chevron Supports Aerospace Hiring Managers

Chevron works with aerospace and defence employers across the UK to help shape roles that are compliant, defensible and attractive to the market.

We support hiring managers by advising on role design, IR35 status, market rates and contractor expectations. If you are hiring contractors and need support making the right IR35 decisions, speak to Chevron Recruitment.