What Is IR35?
IR35 is UK tax legislation designed to prevent "disguised employment" — where contractors work like employees but pay less tax by operating through a limited company. If HMRC determines you're "inside IR35," you'll pay employment taxes on that income.
Inside vs Outside IR35
Outside IR35 means you're genuinely self-employed. You pay yourself through your limited company, take dividends, and benefit from more tax efficiency.
Inside IR35 means HMRC considers you an employee in all but name. You'll pay Income Tax and National Insurance as if you were employed — significantly more tax.
The Three Key Tests
HMRC uses several tests to determine your status:
- Control — Does the client control how, when, and where you work?
- Substitution — Can you send a substitute to do the work?
- Mutuality of obligation — Is the client obliged to offer work, and are you obliged to accept it?
Off-Payroll Working Rules (April 2021)
Since April 2021, medium and large private sector companies are responsible for determining your IR35 status — not you. Small companies (under two of: 50 employees, £10.2m turnover, £5.1m balance sheet) are exempt.
Protecting Yourself
- Get a written contract that reflects your actual working arrangements
- Use HMRC's CEST tool to check your status
- Keep evidence of substitution clauses being exercised
- Consider IR35 insurance for peace of mind
IR35 and Your Invoices
If you're outside IR35, invoice your clients through your limited company as normal. invly makes this easy — set up your company details once and generate professional invoices in seconds.