IR35 Explained – Inside or Outside IR35 for Contractors
If you’re a contractor, few pieces of legislation are as important to understand as IR35. The rules determine whether HMRC views you as genuinely self-employed or as a “disguised employee” – and that decision has a major impact on your tax bill and take-home pay.
What is IR35?
IR35 is designed to ensure contractors who work like employees pay broadly the same tax and National Insurance contributions as employees. Your status is assessed on a contract-by-contract basis.
Who decides your status?
Medium and large clients – these businesses are responsible for assessing your IR35 status and issuing a Status Determination Statement (SDS).
Small clients – in this case, the responsibility remains with you as the contractor.
The impact on your take-home pay
Being inside IR35 typically reduces take-home pay by 20% or more, as income is taxed like employment. Outside IR35, you have more flexibility over how you pay yourself, usually via a mix of salary and dividends which is more tax efficient.
How to protect yourself
- Always obtain a written Status Determination Statement from your client
- Use HMRC’s CEST tool, but also consider independent, insurance-backed tools for greater accuracy and protection.
- Review each contract individually – multiple clients doesn’t automatically mean you’re outside IR35.
Our view
IR35 can feel complex, but it’s essential to get it right. Getting it wrong can be costly; getting it right gives you peace of mind and allows you to plan your finances with confidence.
📞 Not sure where your contract stands, or need help reviewing your working practices? Bright Ideas Accountancy specialises in contractor support and IR35 compliance. Get in touch for clear, practical advice tailored to your situation.
