IR35 & Off-Payroll Working Rules

How IR35 Affects Contractors and Freelancers

IR35 is anti-avoidance legislation designed to prevent “disguised employment” — where a worker operates through a company but, in reality, is working like an employee. If IR35 applies, the worker pays broadly the same Income Tax and National Insurance as an employee would.^[1]

How to Check Your Status

HMRC provides the CEST (Check Employment Status for Tax) tool to help determine whether IR35 applies to a particular engagement:^[2]

The tool asks questions about the working arrangement and gives a determination of “employed”, “self-employed”, or “undetermined”.

Key Factors HMRC Considers

The main tests for employment status are:^[5]

Personal service — must you do the work yourself, or can you send a substitute?
Control — does the client dictate how, when, and where you work?
Mutuality of obligation — is the client obliged to offer work and are you obliged to accept it?
Financial risk — do you risk your own money (e.g. fixing errors at your own cost)?
Part and parcel — are you integrated into the client’s organisation?
Equipment — do you provide your own tools and equipment?

Who Decides?

Client Type	Who Determines Status
Public sector	The client decides
Private sector (medium/large)	The client decides
Private sector (small company)	You (the worker’s company) decides

A “small company” meets two or more of: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees.^[3]

If IR35 Applies (“Inside IR35”)

The fee-payer (usually the client or agency) must deduct Income Tax and employee’s NI from payments, and pay employer’s NI on top. The net effect is that you take home significantly less than if IR35 didn’t apply.^[1]

If IR35 Doesn’t Apply (“Outside IR35”)

Your company receives the full fee. You pay Corporation Tax on company profits and extract income through a tax-efficient mix of salary and dividends.^[4] You’ll usually report the dividends on a personal tax return — you can submit your Self Assessment online with HMRC-recognised software.

Protecting Your Position

Keep written contracts that reflect the actual working arrangement
Document evidence of substitution rights (the right to send someone else)
Maintain a business-like basis (multiple clients, own insurance, own equipment)
Keep the CEST determination for each engagement

Frequently Asked Questions

What is IR35?

IR35 is anti-avoidance legislation targeting disguised employment, where a worker operates through a company but works like an employee. If IR35 applies, the worker pays broadly the same Income Tax and National Insurance as an employee.

Who decides whether IR35 applies?

For public sector and medium/large private sector clients, the client decides. For small private companies (meeting two of: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees), the worker’s company decides.

How do I check if IR35 applies to me?

HMRC provides the free CEST (Check Employment Status for Tax) tool, which asks questions about your working arrangement and gives a determination of employed, self-employed, or undetermined.

What are the key factors HMRC considers for IR35?

The main tests are personal service (can you send a substitute?), control (does the client dictate how, when, and where you work?), mutuality of obligation, financial risk, whether you are integrated into the client’s organisation, and who provides equipment.

Sources

Understanding off-payroll working (IR35) — GOV.UK
Check employment status for tax — GOV.UK
Off-payroll working rules for clients — GOV.UK
Off-payroll working: detailed information — GOV.UK
Employment status — GOV.UK