What IR35 is for
IR35 is the common name for the off-payroll working rules. They are designed to make sure that someone who works like an employee, but through their own limited company or another intermediary, pays broadly the same Income Tax and National Insurance as an employee would.
HMRC's test is whether you would have been an employee of the client if you provided your services directly to them, without the intermediary in between.
Who the rules apply to
The rules apply when you provide your services through an intermediary. That is most often a personal service company (a limited company you own and work through), but it can also be a partnership or another individual.
If you work as a sole trader and contract with the client yourself, there is no intermediary, so IR35 itself does not apply. Your status still matters, though: a client can still treat a sole trader as an employee for tax if the working relationship looks like employment.
Who decides your status
Who makes the decision depends on the client:
- Public sector clients decide your status.
- Medium and large private sector clients decide your status.
- Small private sector clients do not. Your own company decides.
From financial years starting on or after 6 April 2025, a company is generally medium or large if it meets two or more of these: turnover of more than £15 million, a balance sheet total of more than £7.5 million, or more than 50 employees. Check HMRC's guidance for the full rules, including for groups.
When the client decides, it must give you and the party it contracts with a status determination statement (SDS) explaining its conclusion and the reasons. If you disagree, you can ask the client to reconsider, and it must respond within 45 days.
What happens if you are inside IR35
If the rules apply, the organisation that pays your company (the fee-payer, which may be the client or an agency) deducts Income Tax and employee National Insurance from your fees and pays employer National Insurance. Your company receives the net amount.
Being inside IR35 for tax does not make you an employee for employment rights such as holiday pay or sick pay.
What decides inside or outside
Status depends on the real working arrangements, not just what the contract says. The main factors HMRC and the courts look at are:
- Personal service: whether you must do the work yourself, or could send a substitute.
- Control: who decides what you do, how, when and where.
- Financial risk: whether you invest in your business and could lose money.
- Part and parcel: whether you are treated like one of the client's staff.
- Mutuality of obligation: whether the client must offer work and you must accept it.
- Being in business on your own account: other clients, marketing, your own equipment.
HMRC's Check Employment Status for Tax (CEST) tool asks about these factors. HMRC says it will stand by the result if the information you give is accurate and the tool is used in line with its guidance.
How to prepare
- Read the contract and check it matches how you will actually work.
- Ask the client how it will decide your status, and for the SDS once it has.
- Keep a dated record of your own assessment for each engagement.
- If the decision matters to your income, take advice from a qualified adviser.
The 3lanse IR35 checker walks through these areas for each client, with construction-specific questions, and saves a dated record. It is guidance, not a determination.
This guide is general information for UK freelancers, checked against the official sources below on the review date. It is not tax, legal or financial advice. Rules change, so check the sources or speak to a qualified adviser about your own situation.