IR35 is the UK's "off-payroll working" rule. It exists to stop people working like employees but paying less tax by billing through their own limited company. If a contract is "inside IR35", you're taxed broadly like an employee; if it's "outside IR35", you can work through your company tax-efficiently. Getting your status right — and being able to defend it — is what matters. It's about the reality of how you work, not just what the contract says.
Inside vs outside IR35
- Outside IR35 — you're genuinely running a business: you control how the work is done, can send a substitute, take on real financial risk, and aren't treated as part of the client's team. You can pay yourself efficiently through salary and dividends.
- Inside IR35 — in practice you look and act like an employee of the client. Income is taxed like employment (PAYE and National Insurance), so your take-home is lower.
What decides your status
HMRC looks at the working practices, not just the paperwork. The main tests are:
- Control — who decides how, when and where you work?
- Substitution — can you send someone else to do the work?
- Mutuality of obligation — is the client obliged to give you work, and you to accept it?
Other factors (financial risk, being "part and parcel" of the organisation, providing your own equipment) also count.
Who makes the decision
Since April 2021, for medium and large private-sector clients (and public-sector clients), the client is responsible for determining your IR35 status. If you work for a small client, the responsibility stays with you (your limited company). Either way, an incorrect determination can be expensive, so it's worth getting reviewed.
How it affects take-home pay
The same day rate produces very different take-home depending on status. Outside IR35, a salary-plus-dividends approach is usually more efficient. Inside IR35, much of the income is taxed at source. We model both so you can see the real difference — and price your contracts accordingly.
What to do
- Have contracts and working practices reviewed before you sign.
- Keep evidence that supports an outside-IR35 position where it genuinely applies.
- Don't assume the wording alone protects you — HMRC looks at reality.
We help contractors assess status, model take-home both ways, and keep their position defensible. Book a free consultation to talk through a specific contract.
This article is general information, not personal tax or legal advice. IR35 is complex and fact-specific — speak to us about your situation.