Answers · UK 2025/26
What is IR35 UK?
IR35 (officially "off-payroll working rules") is HMRC legislation targeting contractors who work like employees but operate through a limited company to pay less tax. If caught by IR35, the contractor's income is treated as employment income — subject to PAYE Income Tax and NI — eliminating the tax advantage of the company structure.
Full answer
IR35 history: introduced in 2000; reformed for public sector in 2017 and private sector in April 2021 (where the hiring company, not the contractor, determines status). Key test: HMRC's "hypothetical contract" — if the contractor was engaged directly, would they be an employee? Factors include: substitution (can someone else do the work?), control (does the client direct how and when the work is done?), mutuality of obligation (is there an obligation to offer and accept work?). Three determinations: "inside IR35" = contractor is deemed employee; "outside IR35" = genuinely self-employed; "borderline". CEST tool: HMRC's Check Employment Status for Tax tool is the starting point but is not always conclusive. Consequences of being inside IR35: the "deemed employment payment" is added to employment income after a 5% allowance (removed from April 2021 in the reformed rules); subject to full PAYE rates. Practical note: IPSE and contractor bodies recommend working with an employment law specialist to review contracts and working practices before taking an engagement.
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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.