What is IR35? The off-payroll working rules explained
What IR35 is, who decides whether it applies, what happens inside and outside IR35, and your options as a contractor or client.
IR35 is the name for the off-payroll working rules. They apply when someone works for a client through their own limited company, but would be an employee if the client engaged them directly. In that case, the rules make sure broadly the same tax and National Insurance is paid as for an employee.
Where the name comes from
The rules were introduced in April 2000 and take their name from the Inland Revenue press release that announced them in 1999. They were reformed for the public sector in April 2017 and for medium and large private sector clients in April 2021.
Who the rules apply to
IR35 applies to workers who provide their services through an intermediary, usually their own limited company, often called a personal service company (PSC). It does not apply to workers paid through PAYE, such as those employed through an umbrella company.
Who decides: inside or outside?
| Type of client | Who decides status | Who deducts tax if inside IR35 |
|---|---|---|
| Public sector body | The client | The fee payer (often the agency) |
| Medium or large private sector business | The client | The fee payer (often the agency) |
| Small private sector business | The worker's own company | The worker's own company |
Where the client decides, it must give the worker and the next party in the chain a status determination statement explaining its decision and the reasons for it. Whether a private sector client counts as small depends on the company size thresholds in the Companies Act.
What decides status
Status depends on the reality of the working arrangement, not just the contract. The main factors are:
- Control: does the client decide how, when and where the work is done?
- Substitution: could the worker genuinely send someone else to do the work?
- Mutuality of obligation: is the client obliged to offer work, and the worker to accept it?
- Financial risk: does the worker risk their own money, for example by fixing mistakes at their own cost?
- Part and parcel: is the worker integrated into the client's organisation like an employee?
HMRC's Check Employment Status for Tax (CEST) tool can help with an assessment.
What happens inside and outside IR35
Outside IR35
The worker's limited company is paid its fee in full and manages its own tax, usually through salary, dividends and Corporation Tax.
Inside IR35
Where the client decides, the fee payer deducts income tax and National Insurance from the fee as if the worker were employed, and pays employer National Insurance too.
Disagreeing with a decision
If a worker or fee payer disagrees with a client's status determination, they can raise it with the client, which must respond within 45 days, either confirming its decision with reasons or issuing a new one.
Your options as a contractor
- Outside IR35: work through your own limited company. Through our partner accountancy firm we can set one up and look after its accounts. See accountancy and limited company services.
- Inside IR35: many contractors find umbrella employment simpler, with employment rights such as holiday and sick pay. Try the umbrella calculator.
IR35 and the April 2026 rules. HMRC's guidance on the April 2026 umbrella company rules says they do not apply to workers employed through their own personal service company where certain conditions are met. See our April 2026 legislation hub.
Read HMRC's guidance on the off-payroll working rules (IR35).
Frequently asked questions
Does IR35 apply to umbrella workers?
No. Umbrella workers are employees paid through PAYE, so the off-payroll working rules do not apply to them.
Who is responsible for deciding IR35 status?
For public sector clients and medium or large private sector clients, the client decides and must issue a status determination statement. For small private sector clients, the worker's own limited company decides.
What is a status determination statement?
A statement from the client setting out whether the engagement is inside or outside IR35, and the reasons for that decision.
Can I work through a limited company if I am inside IR35?
Yes, but tax and National Insurance will be deducted from your fee as if you were employed. Many contractors find umbrella employment simpler in that situation.
Need help with this? Our payroll and compliance team can talk it through with you. See our limited company services.
Last reviewed 9 October 2026. General information, not legal or tax advice.