IR35

IR35 is UK tax legislation that decides whether a contractor working through their own company should be taxed as an employee. See how it works and who is responsible.

IR35 is the UK's way of stopping contractors from being taxed as businesses when they really work like employees. Since the off-payroll reforms, the determination usually sits with the hiring organisation rather than the contractor, though different rules can apply where the client is small or wholly overseas.

Key facts

IR35 is UK tax legislation that decides whether a contractor working through their own limited company should be taxed as an employee for a given engagement.
For many public-sector and medium or large private-sector engagements, the client must determine whether the off-payroll working rules apply. Different rules can apply where the client is small or wholly overseas.
A wrong determination means unpaid tax and penalties, and HMRC enforces it.

Contents

What is IR35?
Inside vs outside IR35
Who is responsible for IR35
How to stay IR35 compliant
Frequently asked questions
Managing IR35 across your contractors

What is IR35?

IR35 is UK tax legislation that decides whether a contractor working through their own limited company should be taxed as an employee for a given engagement. It targets "disguised employment", where someone works like an employee but is taxed as a business.

Inside vs outside IR35

A contract is "inside IR35" when the engagement looks like employment, so employment taxes apply. It is "outside IR35" when the contractor is genuinely in business on their own account. Status is assessed on the facts of the engagement. Control, substitution and the contractual relationship may be relevant, but no short checklist determines the result.

Who is responsible for IR35

For many public-sector and medium or large private-sector engagements, the client must determine whether the off-payroll working rules apply. Different rules can apply where the client is small or wholly overseas. Get it wrong and the liability, including unpaid tax and penalties, can fall on the business.

Key takeaway: For many engagements, the off-payroll rules place the determination on the client. A guess is not good enough; the determination has to be made and defended per engagement.

How to stay IR35 compliant

Assess each engagement. Do not apply a blanket status across all contractors.
Document the determination. Keep the reasoning and evidence.
Reassess on change. Revisit if the working arrangement shifts.
Back it with expertise. Use a partner with the expertise to support the assessment and its documentation.

Best practice: Make the IR35 determination at engagement, market-aware and documented. Worksome supports the status determination and its documentation as part of the engagement process. Legal responsibility and risk allocation depend on the engagement structure, local law and the applicable service terms.

Frequently asked questions about IR35

Who decides IR35 status? For many public-sector and medium or large private-sector engagements, the client must determine whether the off-payroll working rules apply. Different rules can apply where the client is small or wholly overseas.

What happens if you get IR35 wrong? Unpaid tax and penalties, which can fall on the hiring organisation. HMRC enforces it.

Does IR35 apply outside the UK? No. IR35 is UK legislation. Other countries have their own classification rules.

Managing IR35 across your contractors

IR35 is an engagement-by-engagement decision with real liability attached. Worksome supports that determination and its documentation as part of onboarding UK contractors. Legal responsibility and risk allocation depend on the engagement structure, local law and the applicable service terms.

This page is general information, not legal advice. Tax rules change over time. Confirm your specific situation with qualified counsel. This entry uses UK English.