IR35

IR35 is the UK's set of off-payroll working rules. They cover situations where a contractor provides services through an intermediary — usually a personal service company (PSC) — but works in a way that looks more like employment than business-to-business.

When IR35 applies ("inside IR35"), the contractor is treated as a deemed employee for tax purposes. Income tax and Class 1 National Insurance are deducted at source through PAYE, removing the salary/dividend tax efficiency that Ltd company directors normally benefit from.

When IR35 doesn't apply ("outside IR35"), the contractor can pay themselves as a Ltd director — small salary, dividends for the rest — and keep significantly more of their day rate.

Status is determined by case-law factors: the right of substitution, control over how work is done, mutuality of obligation, financial risk, and several others.

Related terms

• Inside IR35 — An engagement that falls within IR35 — the contractor is taxed as a deemed employee.
• Outside IR35 — An engagement that doesn't fall within IR35 — the contractor can use Ltd company tax efficiency.
• Off-payroll working (Chapter 10) — The 2017/2021 IR35 rules putting the responsibility for IR35 status on the client, not the contractor.
• Personal Service Company (PSC) — A Ltd company through which a single contractor provides their services to one or more clients.
• Deemed employee — A contractor treated as an employee for tax purposes under IR35 — PAYE applies, but no employment rights.
• Status Determination Statement (SDS) — A formal IR35 status decision issued by a client under the off-payroll working rules.