IR35 Explained: What Contractors Need to Know
IR35 is tax legislation designed to identify contractors who work like employees but operate through their own limited company to pay less tax. If your contract is caught by IR35 ("inside IR35"), you pay broadly the same tax and National Insurance as an employee.
Since April 2021, the end client (not the contractor) is responsible for determining IR35 status in medium and large businesses. This is done through a Status Determination Statement (SDS). Small companies still leave the determination to the contractor.
The key factors HMRC considers are: control (does the client dictate how, when, and where you work?), substitution (can you send someone else to do the work?), and mutuality of obligation (is the client obligated to offer work and are you obligated to accept it?). Being outside IR35 requires genuine business autonomy — working for multiple clients, providing your own equipment, and having the right to send a substitute.
Frequently Asked Questions
How do I check my IR35 status?
HMRC provides the Check Employment Status for Tax (CEST) tool. While not legally binding, it gives an indication. Many contractors also use specialist IR35 insurance and contract review services.
What happens if I am caught inside IR35?
Tax and NI are deducted at source by the fee-payer (usually the agency or client). Your take-home pay will be significantly lower than working outside IR35.
Try these free tools
Related guides
Put your knowledge into practice
CoreFi tracks your finances, calculates your tax, and helps you build wealth. Free to start.
Get started freeEducational only. Not financial, tax, or legal advice. CoreFi is not regulated by the FCA.