Answers · UK 2025/26
What is IR35 and the off-payroll working rules?
IR35 (off-payroll working rules) determines whether a contractor working through a limited company should pay tax like an employee. Since April 2021, medium and large private-sector clients are responsible for determining IR35 status. Inside IR35 means paying income tax and NI like an employee; outside IR35 preserves company tax efficiencies.
Full answer
**IR35** is the popular name for the off-payroll working rules (originally Intermediaries Legislation, introduced in Finance Act 2000). It prevents contractors from reducing their tax bills by working through a personal service company (PSC) when they are, in practice, working like an employee. **Brief history:** | Date | Development | |---|---| | April 2000 | Original IR35 introduced — contractor self-assessed status | | April 2017 | Public sector: responsibility shifted to the engager | | April 2021 | Private sector (medium/large companies): responsibility shifted to the engager | **Who decides IR35 status now?** - **Small private-sector companies** (fewer than 50 employees, turnover under £10.2m, balance sheet under £5.1m): the PSC contractor still self-assesses - **Medium/large private-sector and all public-sector bodies**: the end-client determines IR35 status using a Status Determination Statement (SDS) **Inside IR35:** - The fee-payer (often the agency) must deduct Income Tax and employee NI from the payment - Contractor receives a deemed employment payment net of tax - Loses all limited company tax advantages (dividends, expense deductions, etc.) **Outside IR35:** - Contractor operates through their PSC normally - Can pay themselves salary + dividends - Can claim legitimate business expenses - At a day rate of £500 (£130,000/year): outside IR35 take-home ~£75,000–£90,000 vs inside IR35 ~£65,000–£70,000 **The CEST tool:** HMRC's Check Employment Status for Tax (CEST) tool gives an IR35 determination that HMRC will stand behind — if you answer accurately. About 20% of CEST results are inconclusive. **Key contract factors:** - **Substitution** (right to send a substitute): supports outside IR35 - **Control** (client controls how/when work is done): suggests inside - **Mutuality of obligation** (must offer and accept work): suggests inside **IR35 insurance:** specialist policies cover the cost of HMRC investigations and any tax liability. Annual premium typically £500–£1,500.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.