Need advice on IR35?
Even experienced freelancers and contractors find IR35 confusing – and that’s completely understandable. The rules have changed significantly over the years, and keeping up with the latest updates can feel like a full-time job in itself. Thankfully that’s what we’re here for.
Whether you’re new to freelancing or you’ve been doing it for years, this page will walk you through the key things you need to know.
What is IR35?
IR35 targets so-called ‘employees in disguise’ – which in this case are contractors or freelancers operating through limited companies even though their day-to-day role looks no different from a standard employee.
Before IR35, this set-up benefitted both the contractor and the employer. IR35 was introduced to address this. Under the rules, the fee-payer, usually the client or agency, must deduct Income Tax and National Insurance out of their contractor’s pay as they would an employee – and pay their own employer National Insurance Contributions too.
When does IR35 apply to you?
IR35 may apply if you:
- Provide services to a client through your own limited company or another intermediary (such as a partnership)
- Work in a way that resembles employment – for example, you work set hours, can’t send a substitute, or only work for one client at a time
The simplest way to think about this is: Say a new employee starts at the company you’re working with. Would they be able to tell you’re a freelancer rather than an employee? If the answer is no, you’re likely inside IR35.
The key tests HMRC uses
There’s no single yes/no checklist, but HMRC looks at three main factors:
Control: Does the client control what you do, how you do it, and when? If they dictate your working hours and methods closely, that points towards being inside IR35.
Substitution: Can you send someone else to do the work on your behalf, and would the client accept that? A genuine right of substitution is a strong indicator of self-employment.
Mutuality of obligation: Is the client obliged to offer you work, and are you obliged to accept it? If both sides feel locked in, it can look like employment.
Other things HMRC considers include whether you provide your own equipment, whether you take on financial risk, and whether you work for multiple clients.
How can I check if I’m inside IR35?
HMRC provides a free online tool called Check Employment Status for Tax (CEST) at http://GOV.UK , which you or your client (depending on who’s responsible) can use to check your IR35 status. But before you start – you must give them accurate information – not just what’s written in your contract. Otherwise, the CEST results will not protect you.
IR35 can get a little complicated – so it’s well worth chatting with a specialist if you’re unsure.
A Guide To Paying Yourself as a Freelancer
Finance is a scary word for many of us as freelancers. If we’re
How Does IR35 Affect Freelancers?
One of the big attractions of freelancing is the freedom to choose your
Inside vs outside IR35 – what does it actually mean?
Your IR35 status will fall into one of two categories, and which one applies to you makes a significant difference to how you’re taxed.
Inside IR35
You’re treated like an employee for tax purposes, which means your client deducts Income Tax and National Insurance before you’re paid.
You won’t be able to take advantage of the tax efficiencies of working through a limited company for that contract.
Outside IR35
You’re classed as genuinely self-employed. You pay yourself through your limited company in the usual way, managing your own tax affairs.
Getting your status wrong – or having your client get it wrong – can result in a significant tax bill, so it’s worth taking it seriously.
It’s important to note you can have contracts both inside and outside of IR35 – but it’s easy to get caught out. If you’re unsure of where you stand – seek advice from a professional.
