IR35 explained simply
A no-jargon guide to the UK off-payroll working rules — and how to tell if you're inside or outside.
What is IR35?
IR35 is the nickname for the UK's off-payroll working rules. It exists to stop "disguised employment" — where someone works through their own limited company but, in practice, behaves like an employee of their client. HMRC's view is that those people should be taxed roughly the same as employees, not benefit from the lower tax of a limited company structure.
Inside IR35 vs outside IR35
Inside IR35: the engagement is treated like employment. Income tax and NI are deducted before you get paid, and your take-home is similar to a permanent employee's.
Outside IR35: you're a genuine business providing services. You can pay yourself a small salary plus dividends, claim wider expenses, and keep more of what you earn.
How is status decided?
Three main tests: control (does the client direct how you work?), substitution (could you send someone else?), and mutuality of obligation (must they offer work and must you accept it?). The actual working pattern matters more than the contract wording.
Since April 2021, for medium and large private-sector clients, the end-client decides your IR35 status — not you. Small clients still leave the decision to the contractor.
What does IR35 cost you?
Roughly speaking, an inside-IR35 contractor on £500/day takes home 20–30% less than an outside-IR35 contractor on the same rate. Use our take-home pay calculator to model your situation.
What can you do?
- Get a written status determination statement (SDS) from your client.
- Ensure your contract and working practices align — courts look at reality, not paperwork.
- Consider an umbrella company for inside-IR35 contracts to simplify admin.
- Negotiate higher day rates for inside-IR35 work to compensate.
Information only — IR35 is complex. For a real determination, get specialist tax advice.