IR35 Explained — What Contractors Need to Know

What is IR35?

IR35 is tax legislation designed to identify contractors who work like employees but operate through their own limited company. If HMRC determines you are "inside IR35", you pay similar tax to an employee — losing the tax advantages of operating through a limited company.

Inside vs Outside IR35

Outside IR35: You pay yourself a small salary and take the rest as dividends. Effective tax rate: typically 25-35%.

Inside IR35: Your client deducts tax and NI at source, similar to PAYE. Effective tax rate: typically 40-50% on the same gross income.

Who Decides?

Since April 2021, medium and large private sector clients are responsible for determining IR35 status (not the contractor). Small companies are exempt — the contractor still decides.

Use our IR35 Calculator to compare your take-home inside vs outside IR35.