Inside vs outside IR35: what it means for you

Outside IR35

Outside IR35 means the engagement is not caught by the off-payroll working rules. Your limited company invoices the client (or agency) for the full fee, pays Corporation Tax on its profits, and you take money out as salary and dividends in the usual way.

Engagements that are outside IR35 typically involve real control over how you do the work, a genuine right to send a substitute, your own financial risk and a business that clearly serves several clients.

Inside IR35

Inside IR35 means that, for tax, you are treated as if you were an employee of the client. The fee-payer deducts Income Tax and employee National Insurance and pays employer National Insurance before paying your company.

You do not gain employment rights such as holiday pay or sick pay by being inside IR35. Some contractors negotiate a higher rate to reflect this, and some choose to work through an umbrella company for inside engagements.

Side by side

• Who decides: medium and large private sector and public sector clients decide; for small private sector clients, your company decides.
• Paperwork: when the client decides, it must give you a status determination statement with its reasons.
• Pay: outside, your company receives the gross fee; inside, it receives the fee after deductions.
• Expenses: inside IR35, the expenses you can claim are more limited.

Working practices matter more than labels

A contract that says you are outside IR35 does not settle it. HMRC looks at what actually happens on the job: who directs your work, whether you could send someone else, and whether you are integrated into the client's team.

In construction, roles that involve directing site teams, signing as the client's representative or working fixed hours as part of the client's staff structure need careful thought. Specialist, deliverable-based work with real control over how it is done is more likely to point outside.

If you disagree with a determination

If a client gives you an inside determination you believe is wrong, use the client-led disagreement process: write to the client with your reasons and evidence. The client must respond within 45 days, either confirming its decision with reasons or issuing a new statement.