Inside IR35

An engagement is "inside IR35" when, looking past the contract paperwork and at the actual working relationship, the contractor would be an employee if the intermediary (usually a Ltd company) wasn't there.

Tax consequences: PAYE applies. Income tax and Class 1 employee NI come off at source. The salary/dividend efficiency that makes Ltd companies attractive disappears. Most inside-IR35 contractors work through umbrella companies for simplicity.

Related terms

• IR35 — The UK's off-payroll working rules — they decide whether a contractor should be taxed as a deemed employee.
• Outside IR35 — An engagement that doesn't fall within IR35 — the contractor can use Ltd company tax efficiency.
• Deemed employee — A contractor treated as an employee for tax purposes under IR35 — PAYE applies, but no employment rights.
• Off-payroll working (Chapter 10) — The 2017/2021 IR35 rules putting the responsibility for IR35 status on the client, not the contractor.