What does it mean to be inside or outside IR35?

Full answer

IR35 (the off-payroll working rules) exists to stop people working through a personal service company purely to reduce tax and National Insurance while, in practice, working like an employee for the end client. **How status is decided** Status depends on the real working relationship, not just what the contract says, and HMRC looks at factors including control (does the client dictate how, when, and where you work?), substitution (can you genuinely send someone else to do the work?), and mutuality of obligation (is the client obliged to offer ongoing work and you obliged to accept it?). Genuine outside-IR35 contractors typically have more autonomy, can substitute, and bear some financial risk. **Who decides, and who pays if wrong** For engagements with medium and large private-sector clients, and all public-sector clients, the CLIENT (or the agency paying the contractor) is responsible for determining status and, if inside IR35, for deducting tax and NI before paying the contractor's company. Small private-sector clients are exempt from this responsibility, leaving the contractor's own company to self-assess status. **Practical effect of being inside IR35** Income is taxed broadly as employment income, through PAYE-style deductions, before it even reaches the contractor's limited company, largely eliminating the tax advantage of using a company (compared with just being a direct employee). **Practical tip** Use HMRC's Check Employment Status for Tax (CEST) tool as a starting point, keep the contract terms and actual working practices aligned and well-documented, and get a written Status Determination Statement from the client for every engagement.

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