IR35, also called the off-payroll working rules, decides whether a contractor working through their own limited company should pay tax like an employee for a particular contract. It matters to contractors and to the businesses that hire them.

Who decides?

  • Public sector clients have decided their contractors' status since April 2017.
  • Medium and large private sector clients have done so since 6 April 2021.
  • Small private sector clients are exempt. In that case, the contractor's own company still decides.

Where the client decides, it must give the contractor (and the agency, if there is one) a Status Determination Statement, or SDS, explaining its decision and the reasons for it.

Inside or outside?

If a contract is inside IR35, the fee-payer (often the agency) deducts income tax and National Insurance before paying the contractor's company. If it is outside IR35, the contractor's company is paid in full and deals with its own tax.

The factors that matter most

  • Control: does the client decide how, when and where the work is done, or just what needs delivering?
  • Substitution: could the contractor genuinely send someone else, suitably skilled, to do the work?
  • Mutuality of obligation: is the client obliged to offer more work, and the contractor to accept it?
  • Being in business: things like working for several clients, your own equipment and financial risk can help show you're in business on your own account.

What happens day to day counts, not just what the contract says. HMRC's free Check Employment Status for Tax (CEST) tool is a useful starting point.

For hiring managers

  • Decide status role by role, with reasonable care. Blanket decisions for every contractor are risky.
  • Give the SDS before the contract starts, and keep a record of how you reached it.
  • Have a process for contractors to disagree with a decision. You must respond within 45 days.

For contractors

  • Ask about IR35 status early, before you invest time in interviews.
  • Read your SDS and check it reflects how you'll really work.
  • Get advice from an accountant or IR35 specialist if you're unsure.

This guide is a general overview, not legal or tax advice. Talk to our contract team about roles, rates and status, or ask us for our IR35 guide for businesses.