IR35

How IR35 Affects Contractors

IR35 is anti-avoidance legislation designed to identify contractors who work like employees but operate through a limited company or intermediary. If your contract falls “inside IR35”, the end client (or agency for private sector) must deduct income tax and NI at source, similar to employment.

Being inside IR35 significantly reduces your take home pay compared to outside IR35, as you lose the ability to pay yourself efficiently through a mix of salary and dividends. The tax difference can be thousands of pounds per year. Since April 2021, the responsibility for determining IR35 status in the private sector lies with the end client, not the contractor.

Key factors in determining IR35 status include: control (does the client direct how you work?), substitution (can you send someone else?), and mutuality of obligation (must the client provide work?). Use our IR35 calculator to compare inside vs outside scenarios.

How Ir35 Works in Practice

IR35 is tax legislation designed to identify contractors who work like employees but operate through limited companies or other intermediaries. If a contract is deemed 'inside IR35', the contractor must pay tax and NI as if employed, eliminating most of the tax advantages of a limited company structure. Since April 2021, the end client (for medium/large businesses) determines IR35 status, not the contractor.

Practical Tips

IR35 status has a dramatic impact on take home pay — a £500/day contractor outside IR35 might take home £350-£380, while the same rate inside IR35 through an umbrella company yields approximately £280-£300. Key factors determining IR35 status include: right of substitution, control over how work is done, and mutuality of obligation. If you are a contractor, always get your IR35 status assessed before accepting a contract. See umbrella calculator and contractor vs permanent comparison.

Related Topics

Contractors inside IR35 typically work through umbrella companies. Those outside IR35 can operate through their own limited company. The financial difference is significant enough that IR35 status should be a primary consideration in contract negotiations.