Inside vs Outside IR35
Inside IR35
"Deemed employment"
You're treated as an employee for tax purposes. Tax and NI are deducted at source, similar to PAYE.
Outside IR35
"Genuine business"
You operate as a genuine business. You can use salary + dividends strategy for tax efficiency.
What Determines Your Status?
Factors Pointing Inside IR35
Control over how, when, and where you work
No right to send a substitute
Mutuality of obligation (ongoing work expectation)
Using client's equipment and tools
Working exclusively for one client
Being integrated into the client's organisation
No financial risk if project fails
Factors Pointing Outside IR35
Control over your own methods and schedule
Genuine right of substitution
Project-based work with defined deliverables
Using your own equipment and tools
Working for multiple clients
Not integrated into the organisation
Financial risk and business costs
No Single Factor Is Decisive
HMRC looks at the whole picture. Having one "outside" factor doesn't guarantee you're outside IR35. The overall working arrangement is what matters, and all factors are weighed together.
The Three Key Tests
1. Control
Does the client control how, when, and where you work? Employees have less control over their working arrangements.
2. Substitution
Can you send someone else to do the work? A genuine right of substitution is a strong indicator of self-employment.
3. Mutuality of Obligation
Is there ongoing obligation to offer and accept work? Employees have mutual obligations; contractors work project-to-project.
Off-Payroll Working Rules (April 2021)
Since April 2021, medium and large private sector clients are responsible for determining IR35 status for contractors working through their own limited companies.
Client Responsibilities
- Determine status for each engagement
- Provide Status Determination Statement (SDS)
- Pass SDS down the supply chain
- Respond to status challenges
Who Pays the Tax?
- Fee-payer deducts PAYE and NI if inside IR35
- Usually the agency or client paying your company
- 5% expense allowance deducted before tax
Small Company Exemption
If your end client is a small private company, YOU determine your own IR35 status. A company is "small" if it meets 2 of these 3 criteria: