Am I inside or outside IR35 — and how do I check?
Direct Answer
IR35 (off-payroll working rules) determines whether HMRC views you as a disguised employee. If you are outside IR35, you can pay yourself via salary and dividends using your Ltd company. If you are inside IR35, your income is treated as employment income and you pay Income Tax and NI as if you were an employee — significantly increasing your tax bill. The test is based on three factors: substitution, control, and mutuality of obligation.
Why IR35 matters so much
Outside IR35
~£55,000–£58,000
Take-home on an £80,000 contract
Inside IR35
~£46,000–£49,000
Take-home on an £80,000 contract
The difference can be £8,000–£12,000 per year on a typical contractor income. Being wrongly classed inside IR35 can also trigger HMRC enquiries and backdated tax bills.
Is your contract outside IR35?
Don't guess. Use our free 15-point checklist — the same questions a specialist would ask when reviewing your contract.
- ✓ Covers substitution, control & MOO
- ✓ Plain English — no legal jargon
- ✓ Includes a scoring guide with what to do next
Emailed to you instantly. No spam, ever.
The three key IR35 tests
Right of Substitution
Can you send a substitute to do your work if you're unavailable? If yes, this points strongly to outside IR35.
Even if you've never exercised substitution, the right to substitute matters. If the client requires you personally, this is an employment indicator.
Control
Does the client control how you do your work (not just what you deliver)? A genuine contractor controls their own methods and working hours.
If you're told when to work, where to work, and how to do the job — like an employee — IR35 risk increases significantly.
Mutuality of Obligation (MOO)
Is the client obliged to offer you work, and are you obliged to accept it? A genuine contractor can decline work and is not guaranteed an ongoing engagement.
If you're on a rolling contract with no option to walk away, MOO pushes towards inside IR35.
Other factors HMRC considers
Financial risk: Do you risk your own money on the contract? (contractor indicator)
Equipment: Do you provide your own tools and equipment?
Exclusivity: Can you work for other clients simultaneously?
Integration: Are you treated as part of the team — company email, business cards, line management?
Engagement length: Very long continuous contracts attract HMRC scrutiny.
Working practices — often more important than the contract
HMRC does not just read your contract — it investigates how the engagement actually operates in practice. A contract that says "right of substitution" means nothing if you have worked exclusively for one client for three years, attended their team meetings, used their email address, and never worked for anyone else. Working practices are often the deciding factor in an IR35 investigation.
| Factor | Outside IR35 | Inside IR35 risk |
|---|---|---|
| Email address | Your own business email | Client's company email |
| Equipment | Your own laptop, software licences | Client-provided equipment |
| Location | Work from own premises regularly | On-site at client every day |
| Hours | Set your own hours, vary as needed | Fixed 9-5 like an employee |
| Other clients | Work for multiple clients simultaneously | Exclusive to one client |
| Team integration | Treated as external supplier | Integrated into client teams, line managed |
| Contract length | Fixed-term project with defined scope | Rolling indefinite engagement |
| Business cards | Your own company branding | Client's business cards |
The integration trap
Being given a client email address, business cards, or access to internal systems used only by employees are strong integration indicators. If you have any of these, raise it with your accountant before your next contract renewal — they can often be addressed by negotiating different working terms without changing the commercial relationship.
Who decides your IR35 status?
| Sector | Who decides? |
|---|---|
| Private sector — medium/large companies | The client decides (off-payroll rules since April 2021) |
| Private sector — small companies | You decide (small = 2 of: <£10.2m turnover, <£5.1m balance sheet, <50 employees) |
| Public sector | The client always decides |
HMRC's CEST tool
CEST (Check Employment Status for Tax) is HMRC's free online tool. HMRC will stand behind a CEST result if the information entered is accurate. Available at: gov.uk/guidance/check-employment-status-for-tax
Important limitation
CEST does not consider Mutuality of Obligation — many IR35 specialists consider it an incomplete tool. A professional IR35 contract review gives stronger protection.
How to protect yourself
Get an IR35 contract review from a specialist — costs £100–£300 per contract
Ensure your contract reflects the commercial reality of the working arrangement
Keep evidence of substitution rights, financial risk, and working practices
Consider IR35 insurance — some accountancy packages include this as standard
Never work exclusively with one client for years without reviewing your IR35 status
What happens if HMRC investigates your IR35 status?
Stage 1 — Compliance check letter — HMRC sends a letter asking for information about a specific contract. Do not respond without professional advice. Forward immediately to your accountant or IR35 specialist.
Stage 2 — Information gathering — HMRC requests your contract, invoices, working practice evidence, and information about other clients. This stage can last 3–12 months.
Stage 3 — HMRC assessment — if HMRC concludes you were inside IR35, they raise an assessment for unpaid Income Tax and NI. This can cover up to six prior years for suspected deliberate non-compliance.
Stage 4 — Appeal or settlement — you can accept the assessment, negotiate a settlement, or appeal through the tribunal system. Most cases settle — a small number go to tribunal.
Cost without insurance — legal representation alone for an IR35 tribunal case costs £15,000–£50,000+. IR35 investigation insurance covers this. A typical policy costs £150–£300/year.
HMRC targets contractors with long-running contracts, high day rates, and single-client arrangements. If any of those describe you, an IR35 contract review is not optional — it is basic risk management. Autobooks reviews IR35 exposure for every client as standard.
Inside IR35 — what it means practically
Your income is paid via an Umbrella company or the client deducts PAYE directly.
You can still operate a Ltd company, but IR35 income goes through PAYE — the Ltd receives a net amount.
The 5% allowance for Ltd company admin costs was abolished from April 2023.
You can still claim some employment expenses under IR35 — check with your accountant.
Working through an umbrella company — what it costs in practice
When a contract is inside IR35, many contractors work through an umbrella company rather than their own limited company. The umbrella employs you, pays you a salary, and handles PAYE — simplifying administration but at a significant cost.
| Outside IR35 (Ltd) | Inside IR35 (umbrella) | |
|---|---|---|
| Annual contract value | £80,000 | £80,000 |
| Employer NI | ~£479 (on £12,570 salary) | ~£9,200 (on full income) |
| Income Tax | ~£7,500 (dividend split) | ~£15,000 (PAYE) |
| Employee NI | ~£0 (dividend, no NI) | ~£3,500 |
| Umbrella margin fee | £0 | £1,200–£2,400/year |
| Approximate take-home | ~£57,000 | ~£48,000–£50,000 |
The day rate you negotiate for an inside IR35 contract should reflect this gap. If you are moving from an outside IR35 contract at £500/day to an inside IR35 engagement, you need approximately £560–£580/day gross to maintain the same net take-home. Many contractors fail to negotiate this uplift and simply absorb the £8,000–£10,000 cost.
Always use an FCSA-accredited umbrella company. Non-compliant umbrellas — particularly those promising unusually high take-home pay through loan schemes or other arrangements — expose you to significant HMRC risk. The FCSA accreditation is the minimum standard to look for.
IR35 is too important to leave to chance.
At Autobooks, we work exclusively with contractors and review IR35 risk as standard — from £89+VAT/month.
Is your contract outside IR35?
Don't guess. Use our free 15-point checklist — the same questions a specialist would ask when reviewing your contract.
- ✓ Covers substitution, control & MOO
- ✓ Plain English — no legal jargon
- ✓ Includes a scoring guide with what to do next
Emailed to you instantly. No spam, ever.