What is IR35? Am I outside off-payroll rules or inside IR35?

Introduction

For 2025-26, we’ve put together this contractor IR35 guide out of pure and simple need.

The IR35 legislation’s definitions are ambiguous.

The line HMRC draws between employed for tax purposes and self-employed for tax purposes can be blurry. Working practices and end-users can also blur it.

What does IR35 refer to?

And if the blurring of the line when trying to decide IR35 status isn’t troublesome enough, “IR35” can today refer to three separate frameworks:

1. The Intermediaries legislation: effective since April 6th 2000, sometimes called ‘old’ IR35
2. The public sector Off-Payroll Working rules, effective since April 6th 2017, sometimes called ‘OPW’
3. The private sector Off-Payroll Working rules, effective since April 6th 2021, also known as ‘OPW’

IR35 and contractor limited companies

Today, in the 2025-26 tax year, we expect most contractor limited companies to be primarily interested in framework 3, simply because most contractors supply organisations in the private sector.

However, where the private sector end-client in receipt of the limited company contractor’s services is a “small company” (as defined under the Companies Act 2006), framework 1, ‘old’ IR35,’ is in play.

Freelancer Financials top tip on IR35
Just because IR35 is ‘in play,’ it doesn’t mean that IR35 necessarily applies.

IR35 versus Off-Payroll Working (OPW) rules: what’s the key difference?

The key difference between IR35 of 2000 and both sets of OPW rules is the identity of the party which makes the IR35 status determination.

Under ‘old’ IR35, the contractor decides their IR35 status, whereas under the 2017/21 frameworks, the end-user decides IR35 status.

Under the OPW legislation, the end-user (in both the public and private sectors) must outline its IR35 status decision to the contractor on a Status Determination Statement (SDS).

The SDS will state “inside IR35,” meaning the OPW rules apply, or the SDS will state “outside IR35,” meaning the OPW rules do NOT apply.

IR35 versus Off-Payroll Working Rules: liability

Another key difference between the IR35 rules of 2000 and the OPW rules of 2017/21 concerns HMRC liability.

Under ‘old’ IR35, it is the contractor who holds potential liability to HMRC for an incorrect IR35 status decision.

By contrast, under the OPW rules (both private and public sector frameworks), it is the “fee-payer” who normally holds potential liability to HMRC.

While the end-user is always responsible for making the IR35 status determination and issuing a Status Determination Statement, they are not always the fee-payer and therefore may not always hold the tax liability.

For example, HMRC liability can rest with the recruitment agency, as the OPW legislation states that the liability rests with the entity which fails to pass the Status Determination Statement onto the contractor.

Freelancer Financials top tip on IR35
Liability will remain with the end-user (even if they are not the fee-payer) if they do NOT pass on the SDS in the first place, or do NOT take reasonable care” in their determination.

What’s the tax difference between inside IR35 and outside IR35?

If the SDS states “inside IR35” — often referred to as ‘caught by IR35,’ then PAYE and NICs will be automatically deducted.

This two-fold tax deduction returns the contractor with a significantly lower level of take-home pay, equivalent to the take-home of the engager’s full-time and internal employees, than “outside IR35” (i.e. not caught by IR35).

Freelancer Financials top tip on IR35
While take-home pay from an inside IR35 determination can disappoint, the many advantages of using a limited company still exist on contracts you take on that are uncaught by IR35/OPW.

Suffering contractor take-home pay at employed levels is no accident, of course. The whole aim of IR35 is, to use HMRC’s phrase from 1990, to tackle “disguised employment.”

Challenge an IR35 status decision: overview

Fortunately, under the OPW legislation, contractors can challenge the end-user’s IR35 decision.

The end-user has 45 days to respond to a contractor’s objection, which should be made to the end-user in writing.

Less fortunately, though, at the end of 45 days, the end-user is legally permitted to merely stand by its original decision!

Appealing “inside IR35” to HMRC

Contractors who still believe that the end-user’s IR35 decision is incorrect, and who wish to further challenge their receipt of “deemed employment income” (i.e. income that has had PAYE and NICs already deducted), can appeal to HMRC.

Appealing an end-user inside IR35 decision to HMRC is a complicated, risky, technical process. This is partly because your notifying HMRC that you want to appeal will trigger a formal dispute with the tax authority.

We would always advocate contractors seeking tailored guidance from a contractor status, tax or legal adviser who specialises in IR35.

Freelancer Financials top tip on IR35
For all IR35 queries, we’d recommend contractors reach out to Qdos. We’ll share more details about these IR35 experts later in this guide.

But there’s no harm in getting your enquiry to Qdos underway now — particularly if you’re concerned about IR35, or worse — feel panicked because you’ve received an inside IR35 determination or tax bill.

For OPW compliance, it’s vital to first grasp the Intermediaries legislation (IR35)

To understand more about the OPW rules, we need to fully look at what ‘old’ IR35 is truly about.

This need to fully understand the first version of IR35 is key because the IR35 status factors that end-users, HMRC, and the courts would today assess to determine whether a role is “inside IR35” or “outside IR35” under the prevailing OPW rules, have not fundamentally changed since the Intermediaries legislation was introduced in 2000.

The rest of this guide mostly looks at this initial version of IR35 and explores what contractors can do to avoid falling foul of the “disguised employment” legislation of 2000.

Freelancer Financials top tip on IR35
“IR35” takes its name from the number of the press release which HMRC, then the “Inland Revenue,” outlined the framework upon in 1999. It was “IR 35.”

The fact that you may be “inside IR35” according to your own assessment (under ‘old’ IR35) or under an end-user’s assessment (under ‘OPW’), may be why you’ve landed on our contractor IR35 guide.

Is IR35 the end of my contractor career — if I’m deemed inside IR35?

Just realise, “inside IR35” is NOT the be-all and end-all of your contracting career!

However, if things are even further along the line and HMRC is already investigating your contractor business, your first priority is to enlist the guidance of a contractor tax advisor.

As referred to above, you’ll ideally secure the services of a status, legal or tax adviser who specialises in IR35, rather than opt for a high-street accountant. A mere ‘working knowledge’ of the three ambiguous IR35 frameworks isn’t enough to guarantee you’ll beat IR35.

Freelancer Financials top tip on IR35
Don’t settle for a non-specialist on IR35 if you truly need help with your contractor status. An IR35 specialist, like Qdos, will be up-to-date with both the very latest IR35 case law and current HMRC practices, which could make all the difference in an IR35 investigation.

Two things to prioritise while under IR35 investigation

Over the many years we’ve been advising limited company contractors, we’ve come to realise that there are two things very worth doing should HMRC investigate you under ‘old’ IR35.

1. Carry on contracting! Your tax status doesn’t affect your ability to perform your role, whether the role is connected to HMRC’s enquiry or not
2. Contact Qdos!

We’re not fans of repeating ourselves. But with something as complex as IR35, it’s worth reiterating some key points – chief among these key points is that Qdos really are leading experts on IR35 and OPW. compliance.

Qdos is an IR35 adviser who’s offered IR35 guidance since the dawn of  IR35

We know the Qdos IR35 contract review team personally.

So we can vouch for their ability to understand IR35 and navigate the nuances of the OPW rules. Qdos has supported UK contractors for over two decades, having been advising on the legislation since its introduction in 2000!

Ever since then, it’s been vital for contractors operating outside IR35, or striving for an outside IR35 position, to be distinguishable from the engager’s employees.

Put another way, it is only “inside IR35” contractors who can relax about doing the same role, tasks or hours as the end-user’s employees.

Write down key differences between client treatment of you versus client treatment of staff

Assuming you want to stay or be outside IR35, we recommend you keep a log of the differences between you and the end-user’s internal, payrolled staff.

The goal here is to observe and then keep evidence of the ‘clear blue water’ that should exist between your working practices and the working practices of end-user employees.

In your log, highlight the differences between the treatment from the end-user that you receive and the treatment that its employees receive.

An outside IR35 mindset – required from day one of your contracts

Related to this distinguishing of your role from the role of an employee, you must change the way you think about your work — again, assuming you want to achieve or safeguard outside IR35.

For example, you must be able to distinguish whether you’re providing services (which is indicative of “outside IR35”) or just skills (which is indicative of “inside IR35”).

Similarly, to stay outside IR35 or where the off-payroll rules don’t apply, remember that the end-user is engaging the company, not you as an individual.

Freelancer Financials top tip on IR35
With a piece of legislation like IR35 where its interpretation can be subjective, it can be the small details that matter, particularly should an HMRC inspector call! For example, get into the habit of describing the end-user as your “client,” not your “employer.”

This contractor guide to IR35 and the Off-Payroll Working rules has started to touch on the key IR35 status factors that since 2000, have been used to decide contractor IR35 status.

We recommend you seek tailored advice from an IR35 expert for technical detail on IR35 assessment criteria, to fully understand inside IR35 determinations or how to be outside off-payroll rules.

What factors determine IR35 status?

Broadly speaking, the key factors which determine your IR35 status stem from the Ready Mixed Concrete case (1968).

And, in order of importance in 2025-26, the factors that determine IR35 status are three-fold:

1. Right of Control: Is there a right of control over how, what, when and where the work is undertaken? ‘How’ and ‘what’ are typically the most important elements.
2. Right of Substitution (RoS): Is there a genuine right to supply a substitute? An ‘unfettered’ right is ideal, and it must be realistic and capable of being exercised in practice or else HMRC might call the RoS a “sham.”
3. Mutuality Of Obligations: Is there an obligation on the end-user to offer further work (or pay when no work is performed), and an obligation for the worker to accept any further work offered?

Freelancer Financials top tip on IR35
Since a 2024 ruling in HMRC’s favour (in the ‘PGMOL’ case) which held that without MoO there can be no contract of any kind, it is widely acknowledged that contractors should focus their outside IR35 defence strategies on factors other than Mutuality.

Secondary factors that inform IR35 status, which additionally helps HMRC, engagers and other taxpayers in determining the ‘whole picture’ of contractor IR35 status, include:

• Part & Parcel: Is there a level of integration of the contractor into the end-user’s organisation which is similar to the level of integration an end-user’s employee would have?
• Financial Risk: Does the worker face any costs which are fundamental to the contract; significant, and which they would bear, even risking financial loss through by incurring them?

How does HMRC work out if contractors like you are inside IR35?

The above five factors have largely and COLLECTIVELY decided numerous IR35 statuses over the decades, including those inside IR35 determinations that contractors disagree with and therefore end up at the First-tier Tax Tribunal or even the Upper Tribunal.

The word “collectively” is intentional here.

The courts regularly advise that because no one single factor can determine IR35 status, it is the “whole picture” that needs to be considered.

We suspect however that HMRC rushes to judgement if it investigates a limited company under IR35 and uncovers the ‘Friday to Monday’ scenario!

What is the Friday-to-Monday scenario?

Coined at the time IR35 was introduced in 2000, the term “Friday-to-Monday” refers to an employee resigning from an organisation’s payroll on the Friday and rejoining the organisation on the Monday, albeit as an independent contractor!

Once upon a time, the Friday-to-Monday scenario suited both parties.

It absolved the employer of obligations to pay national insurance and calculate PAYE tax. In return, the new contractor could reduce their overall tax liability by taking payment in the form of dividends and offset ”business” expenses against their annual tax bill.

What few foresaw was the then Labour government’s gritty resolve to quash this practice.

In the eyes of HMRC, this is not contracting; this is becoming a disguised employee. And so the Intermediaries legislation was born.

IR35: Does HMRC look beyond the Friday-to-Monday scenario to deem contractors caught?

A history of employment between two parties will not be the only factor HMRC considers, of course.

The taxman will assess the primary IR35 status factors, above, and then the secondary factors (which extend to ‘badges of business’ – evidence that the contractor is ‘in business on their own account’).

Both primary and secondary factors will be considered as part of the taxman’s IR35 status ‘picture-painting’ process.

Freelancer Financials top tip on IR35
In March 2027, HMRC unveiled Check Employment Status for Tax (CEST). A free-to-use tool, CEST is designed to help taxpayers determine IR35 status. The tool has many critics, but it remains the one IR35 status tool that HMRC says it will stand behind the outcomes of. Assuming, that is, that the inputted details are accurate and non-fraudulent.

Two quick questions to ask to help decide IR35 status

There are two quick-to-ask questions which we believe can help cut through the ‘grey area’ of IR35 status.

These two questions are helpful to ask if you’re one of the many contractors who don’t know their employment status. This population was once thought to be as large as six in 10 Personal Service Companies!

Freelancer Financials top tip on IR35
A limited company is a type of Personal Service Company(PSC). But be aware, the term ‘PSC’ is not defined in law, although it is generally accepted that ‘PSC’ denotes an incorporated entity (an intermediary) through which a single worker provides their services.

Now, back to our two quick IR35 status questions which can help you gauge if you’re inside or outside IR35.

Taking the current contract with your client, ask yourself this one question first:

1. If you swapped your contract for an employed role, would it influence the way you operate?

The closer to “No” your answer is, the more likely it is that you ARE working “inside IR35.”

Here’s the second question that any contractor business can pose to see what side of the IR35 line they likely operate on.

2. If the company director decides not to carry out their service in person, can they send in a substitute?

The eagle-eyed will notice that this question relates to IR35 status factor 2 above — Right of Substitution.

Remember, no one factor alone can determine IR35 status and, arguably, a right of control is more determinative than a right of substitution.

But until very recently HMRC put so much stock in a ‘lack of personal service’ being an outside IR35 signpost, that CEST users who answered ‘Yes,’ to the question of whether they had sent a substitute on their contract (and paid said-substitute via their limited company), automatically received an “outside IR35” result.

It was a slam dunk for contractors looking for an outside IR35 outcome.

Outside IR35 strategies: Other ways to prove you are a genuine business

The thinking behind substitution is pretty straightforward.

Once seen as a ‘silver bullet’ to achieving outside IR35 status, substitution rests on the idea that a bonafide business WOULD be able to send a suitably skilled replacement whereas an employee would NOT.

Are there other ways to help prove you are a freelance business, and therefore outside IR35?

Genuine businesses mostly wouldn’t risk relying on just one client.

So to show your diversity and appetite for clientele, your contractor limited company should invest in marketing and branding.

This isn’t only good business practice because all enterprises need more than a single customer. It also helps prove that you’re a bonafide business, thus deserving of “outside IR35” status.

Grow your company brand to help demonstrate in business on your own account

Those new to contracting are understandably budget-conscious in their first few years of trading. And as soon as we think ‘advertising’, many of us think ‘costs’, too.

But marketing, advertising, and even your own stationery bearing the company’s name are additional signposts that you are ‘in business on your own account,’ and might therefore be outside IR35.

Often shortened to ‘IBOOA,’ being ‘In Business On Own Account’ is a secondary IR35 assessment factor, but it has proved important in the recent spate of ‘TV presenter’ IR35 cases, swinging the decision in favour of the taxpayer where judges appeared ambivalent.

Freelancer Financials top tip on IR35
The IR35 case of ECR Consulting Ltd (2011), which went in favour of IT contractor Elaine Richardson, is worth reading for contractors looking to edge their IR35 status away from “inside IR35.”

The judgment underlines the importance of a contractor business having its own stationery, business cards and also as Elaine had, its own website and adverts promoting its services. Collectively, these ‘badges of business’ can be invaluable in cementing outside IR35 status.

When HMRC uses Financial Risk and Equipment to allege inside IR35

Let’s look a bit further at the case of ECR Consulting Ltd v HMRC.

Earlier we mentioned, Financial Risk.

Well, although HMRC ultimately lost the case against ECR Consulting, the tax authority tried to argue at the hearing that Richardson took “no financial risk.”

It also argued that because equipment was largely provided by the end-user to Richardson, “Equipment” and “Financial Risk” were two IR35 status factors that demonstrated an employment relationship.

The fact that HMRC was unsuccessful goes some way to confirming that both factors are secondary (and therefore more minor) IR35 status factors.

Freelancer Financials top tip on IR35
While an IR35 defence should never rely on secondary IR35 status factors, in recent years ‘Financial Risk’ has proved to be marginally more determinative than ‘Equipment’ in those IR35 cases which have reached the courts.

What does Part & Parcel look like?

Something else this contractor IR35 guide previously mentioned is Part & Parcel.

It’s a secondary factor in determining IR35 status.

Well, a bit like you SHOULD ideally provide your own equipment, and TAKE financial risk, to be outside IR35 and out of OPW’s scope, you ideally want to have NO evidence indicating integration, and lots of evidence AGAINST employee-style integration.

If being outside IR35 matters to you, here are four things contractors must refuse

IR35 inspectors might look for the following four in your engagement to help cement an inside IR35 determination. With all four, contractors should DECLINE to head off an inside IR35 determination:

1. Invitations to employee events e.g. staff appraisals, team-building, and training
2. Free ticket to Christmas/Summer party
3. Staff security pass or other employee ‘badges’ (even employee-esque job titles in email signatures are ill-advised)
4. Staff car park access/bay

Each may be tempting, but don’t risk attending or accepting them. They’ll only go to prove a relationship beyond your contract.

Do you have an outside IR35 mindset?

While we’re on workplace matters, another thing to get in check to achieve or protect IR35 status is your mindset.

That’s because an outside IR35 mindset switched on from day one of your freelance/temporary contracts affects numerous practical parts of your day-to-day working practices.

To achieve outside IR35 status, your contract FOR services (as opposed to a contract OF services – which is what employees have) will need to match and support your autonomous working practices.

As an outside IR35 contractor, you are on-assignment on behalf of your company

But it’s crucial to remember that when it comes to your business, YOU call the shots, and your current outside IR35 engagement is merely you on a client assignment, on behalf of your business.

We’re not suggesting that you start dictating to your clients! That’s a surefire way of running your business into the ground. Too much attitude and you won’t need HMRC to pull the rug from beneath you.
However, do take complete control of your business’ destiny.

Being firm and assured announces your professionalism, and intent. It also shows you’re serious about IR35. It’s another degree of separation, helping prove you’re a business, not a disguised employee.

Work to your own schedule, within client parameters

You and your client will agree on what you’re going to provide through your limited company, and the contract is the definitive statement of that agreement.

If you’re working on-site, deadlines might be set by the client’s workplace hours, but wherever possible, try to differentiate the hours from employees’ hours.

For some outside IR35 contractors, the only time criterion is the project’s completion date.

Outside IR35 in the workplace: Milestones, deliverables and logging your own hours

Or it might be mutually agreed ‘project milestones’ or ‘deliverables’ that, with the client’s ultimate deadline in mind, you — the contractor — should initially suggest.
Logging your own hours for invoicing purposes demonstrates a degree of independence, so get ‘remote access’ where you can and document your working time.
If it’s a big project, tackle it in stages.
Create milestones along the way, and points to discuss progress and problems. Your client may even want to refocus the project’s direction at a juncture down the line. That’s fine, but again, you should ‘call the shots,’ as far as possible.

No master-servant relationship = Outside IR35

Remember when outside IR35, they have engaged your business for specialist skills and services, and this should be reflected in the decision-making.

You are not an employee if operating outside IR35; you are therefore not in a master-servant relationship.

Part of that ‘not having a master’ — except for your own limited company — is necessary because to make your contracting career viable, you’ll want multiple clients.

Certainly, you want to avoid depending on a single organisation, so contractual clauses insisting on exclusivity are to be revised wherever possible.

Freelancer Financials top tip on IR35
Like ‘duration of contract,’ exclusivity or having just one customer is not a statutory IR35 status factor. In other words, having just one client, or having just one client for a very long time is NOT a slam dunk for HMRC. But that’s not to say both are not IR35 red flags. Therefore, both ought to be avoided where outside IR35 is being operated or intended.

Six IR35 quick-wins

At all times of your contract, remember — IR35 tries to prove that you’re an individual entity, not a genuinely self-employed business. The best form of defence here is attack, with these six quick-wins:

1. Take out professional indemnity and liability insurances
2. Register with HMRC for VAT if your turnover warrants, or voluntarily VAT-register if it would be commercially beneficial
3. Invest in computers/tech and tools of the trade
4. Create your ‘Internet Real Estate’ (websites, blogs, social media profiles), ideally in your company’s name
5. Create and order branded company stationery, business cards etc, potentially by making use of HMRC’s Trivial Benefits Exemption
6. Prove your commercial intent: act like a business at all (ALL) times

Appoint an IR35-savvy accountant

And very finally, do hire a contractor-friendly accountant to prepare your books to a professional standard.

Yes, accountants are an expense that makes new limited company contractors wince. But you’ll very quickly see that a good accountant can save you much more than they cost!

A good contractor accountant can also advise you on everyday IR35 compliance if you’re unsure or get stuck.

Freelancer Financials top tip on IR35
Before you sign as a contractor on the dotted line with a new accountant, ask if they provide any free IR35 tools, such as an IR35 contract review. If they don’t, it may be prudent to consider IR35 protection insurance where IR35, rather than the OPW rules, will be in play.

Not convinced you need a chartered accountant or reputable contractor tax adviser? Okay; just one last question then. Have you ever heard of a business without an accounts department or an accountant? No? Neither has IR35.