If you're contracting in the UK — or thinking about it — IR35 is the single most important piece of legislation you need to understand. It directly affects how much you take home and how you structure your working arrangements.
What does IR35 actually mean?
IR35 is the shorthand for HMRC's "off-payroll working rules." In practice, it's a test: would this contractor be an employee if they were engaged directly, rather than through their own limited company?
If the answer is yes, the contract falls "inside IR35" and the contractor pays roughly the same tax as an employee — losing the tax advantages of working through a limited company.
If the answer is no, the contract is "outside IR35" and the contractor retains the tax-efficient structure of their limited company.
Who decides: inside or outside?
Since the 2021 reforms, the end client (not the contractor) is responsible for making the IR35 determination for medium and large businesses. This is done through a Status Determination Statement (SDS) that the client must provide before the engagement starts.
Small companies are exempt — for those engagements, the contractor's own limited company still makes the determination.
The key factors HMRC looks at
Three main tests drive the IR35 assessment:
1. Control
Does the client dictate how, when, and where the work is done? If the contractor has genuine autonomy over their working methods, that points to outside IR35.
2. Substitution
Could the contractor send a qualified substitute in their place? A genuine right of substitution is a strong indicator of self-employment.
3. Mutuality of obligation
Is the client obliged to offer work, and is the contractor obliged to accept it? In a true business-to-business relationship, either party can walk away between engagements.
What "outside IR35" means for your rate
Outside IR35, contractors typically work through a limited company and pay themselves a combination of a small salary and dividends. This structure means:
- Corporation tax on profits (currently 25% for profits over £250k, 19% for the first £50k)
- Dividend tax at lower rates than income tax
- No employer's NI on dividends
The net result: a contractor on £550/day outside IR35 typically takes home significantly more than the same rate inside IR35.
How to find genuine outside IR35 roles
Not all roles advertised as "outside IR35" have been properly assessed. Look for:
- A written SDS from the end client
- Contracts that reflect genuine project-based deliverables
- Roles where you have autonomy over how you deliver
- Engagements with a defined end date and scope
At outsideir35.net, we aggregate outside IR35 contracts from multiple sources into one place, so you can browse them all without jumping between job boards.
Common mistakes to avoid
- Accepting a blanket determination — Some clients apply inside IR35 to all contractors without proper assessment. You have the right to challenge this.
- Ignoring your working practices — Even if the contract says "outside IR35," your actual working arrangements must reflect it.
- Not keeping records — Document your working practices, substitution rights, and any evidence of genuine self-employment.
The bottom line
IR35 isn't going away. Understanding where you stand — and structuring your engagements accordingly — is the difference between a highly tax-efficient contracting career and paying employee-level tax without employee benefits.
The best approach: find genuinely outside IR35 roles, ensure your contract and working practices align, and keep good records.