UK IR35 / Off-Payroll
Calculator 2025-26

IR35 (officially the Intermediaries Legislation, Part 2 of ITEPA 2003 plus subsequent Off-Payroll Working amendments) is HMRC's tax legislation designed to prevent 'disguised employment' — where someone provides services through a Personal Service Company (PSC) but the actual working relationship resembles employment. If a contract is INSIDE IR35, the income is taxed as employment income (PAYE + employee NIC at marginal rates), eliminating the tax advantages of the PSC structure. If OUTSIDE IR35, the contractor can pay themselves via low salary + dividends with Corporation Tax on company profit — typically saving 10-25% of gross income compared to inside-IR35 treatment.

Depends on the client size and date: (1) Public sector (since April 2017) and medium/large private sector (since April 2021 — Chapter 10 ITEPA 2003): the CLIENT determines status and is liable for incorrect determinations. Client issues a Status Determination Statement (SDS). (2) Small private sector clients (< £10.2M turnover OR < £5.1M balance sheet OR < 50 employees per Companies Act 2006 size thresholds): the CONTRACTOR'S PSC determines status under original IR35 rules. Disputes resolved via HMRC's CEST tool or tribunal. Misclassification penalties: tax + NIC arrears + 50-100% penalty + interest. Notable cases: Adrian Chiles, Lorraine Kelly, Gary Lineker — all argued outside IR35 at various tribunal stages.

Three primary tests from case law (Hall v Lorimer 1994, Ready Mixed Concrete 1968): (1) Mutuality of Obligation (MoO) — is the engager obligated to provide work AND is the worker obligated to accept it? Mutual obligation = employment indicator. (2) Personal Service / Right of Substitution — must the worker personally do the work, or can they send a substitute? Genuine substitute right = self-employment indicator. (3) Control — does the engager control how, when, and where the work is done? High control = employment indicator. Additional factors: financial risk, provision of own equipment, integration into the client's organization, mutuality of relationship duration, intention of the parties (less weight in tribunal). HMRC's CEST tool weighs ~30 questions across these factors.

For a £75,000 day-rate contractor (≈£500/day × 150 days/year): Inside IR35 (treated as employee): Income Tax ~£15,432 + Employee NIC ~£3,008 + Employer NIC ~£8,820 (typically deducted from gross rate) = net ~£47,740. Outside IR35 (via PSC): Corporation Tax on £75,000 (small profits ~19% + marginal relief ~26.5% above £50k) ≈ £16,125; remaining £58,875 paid as low salary (£12,570) + dividends (£46,305). Net after Income Tax on salary + dividend tax: ~£56,000 take-home. Difference: ~£8,000+ per year favouring outside IR35. For higher day rates, the advantage compounds. Note: outside IR35 carries compliance burden (corporation tax filings, PAYE for any salary, annual accounts, professional indemnity insurance).

HMRC's Check Employment Status for Tax — an online questionnaire to determine IR35 status. Available at gov.uk/check-employment-status-for-tax. CEST has been criticized for over-emphasizing certain tests; HMRC stands by determinations that align with CEST (some industry bodies disagree). Best practice: complete CEST honestly based on actual working arrangements; retain the printable output. If outside IR35, CEST output is evidence; if inside IR35, expect PAYE deduction. Re-run CEST when contracts change. Note: CEST does not always agree with tribunal outcomes — the BBC and HMRC have disagreed on dozens of presenters' status. Recent improvements to CEST have made it slightly more accurate but it remains imperfect.

When operating outside IR35 through a PSC, legitimate business expenses reduce corporation tax: (1) Professional indemnity insurance (£300-£1,000/yr typical). (2) Accountancy fees (£1,000-£2,500/yr). (3) Equipment & software (laptop, monitor, subscriptions used for the business). (4) Travel to client sites — but ONLY if NOT a permanent workplace (the 24-month rule: a workplace becomes 'permanent' after 24 months, after which travel is no longer deductible). (5) Training related to the trade. (6) Use-of-home allowance (~£6/week without records, or actual costs with usage records). (7) Subsistence on overnight stays away from home. (8) Mobile phone (if contract in company name). Inside IR35: most of these are not deductible — treated as employee with very limited deductions (only allowable under §336 ITEPA 'wholly, exclusively and necessarily').

Yes — IR35 is contract-by-contract, not contractor-by-contractor. A contractor can be outside IR35 with Client A (where they have substitution rights, control over how work is done, financial risk) and inside IR35 with Client B (working similar hours to permanent staff, no substitution, integrated into their team). Each contract assessed separately. This is common for contractors with diverse client portfolios. Tax filings handle this: inside-IR35 income reported as employment income on Self Assessment; outside-IR35 income reported as dividends/salary from your own PSC. Keep clean records and separate contracts/invoices for each engagement.

If HMRC successfully argues a contract was inside IR35 but you treated it as outside, the consequences are severe: (1) The PSC owes the full PAYE Income Tax and employee NIC that should have been deducted, plus employer NIC. (2) Penalty 30-100% of the tax owed (deliberate vs careless determination). (3) Interest from the date the tax was originally due (currently ~7.5% per HMRC late payment rate). (4) Period covered: typically 4-6 years (extended to 20 years for deliberate fraud). For a £100k/year contractor over 4 years, potential exposure £80k-£150k+. Many contractors maintain IR35 insurance (e.g., Qdos, Markel) which covers professional fees if HMRC investigates — typically £150-£500/year. The April 2021 reforms shifted liability to the client for medium/large engagements, reducing this risk for contractors there.

Build evidence supporting self-employment indicators: (1) Substitution clause in contract AND demonstrably exercisable (HMRC will scrutinize if it's purely paper). (2) Multiple concurrent clients. (3) Use your own equipment (laptop, software). (4) Set your own hours and methods. (5) Refuse work when offered (no mutuality of obligation). (6) Bear financial risk (fixed-price contracts, fix defects at your cost, professional indemnity insurance). (7) Not on the client's organizational chart. (8) Different working pattern from permanent staff (e.g., remote when most work in office). (9) Sub-contract part of the work. Documentation: contracts with substitution + control clauses, invoices showing project-based billing, evidence of refused engagements, screenshots of organizational charts excluding you. Renew substitution clause every contract renewal.

Inside IR35 via umbrella company: contractor becomes an employee of the umbrella; PAYE + NIC deducted; you receive net pay. No corporation tax filings. Umbrella fee typically £20-£30/week. Inside IR35 via PSC ('deemed employment' option): PSC must operate PAYE on the gross rate; PSC retains compliance burden but no tax advantage. Most contractors prefer umbrella for inside-IR35 to avoid double admin. Umbrella vs PAYE direct: similar tax outcomes; umbrella provides continuity if you bounce between engagements. Watch out for umbrella mini-employment scams promising higher take-home — HMRC has shut down many disguised remuneration schemes (loan charges, EBT-style arrangements). Stick with reputable accredited umbrellas (Professional Passport, FCSA accredited).