Key points
- IR35 applies when you work through your own company, but the relationship with the client looks like employment. Then tax is due much as if you were employed.
- The main tests are control, substitution and mutuality of obligation. HMRC looks at how you really work, not only at the contract.
- For medium and large clients, the client decides your status. For small clients, your own company decides.
- Protect yourself with a clear contract, the HMRC CEST check, and records of how you actually work.
Meet Bob
Bob is a talented web developer who goes freelance. He sets up his own limited company and lands exciting projects. Then he hears about IR35, a UK tax rule that can sharply change how much tax Bob and his clients pay.
Bob at MegaCorp
- Detailed project plan, set hours, a company laptop.
- Told when, where and how to work.
- Looks like an employee: likely inside IR35.
Bob at SmallBiz
- Creative freedom, his own hours and equipment.
- Works on other projects at the same time.
- Looks like a real business: likely outside IR35.
The three key tests
- ControlHow much say does the client have over how, when and where the work is done? Detailed instructions are a red flag.
- SubstitutionCan you send someone else to do the work? A genuine business should have that right, even if it never uses it.
- Mutuality of obligationMust the client offer work, and must you accept it? If you cannot turn work down or take other clients, it looks like employment.
Other factors also count: whose equipment you use, whether you carry financial risk, whether you are part of the client's organisation, and how long the engagement lasts.
Who decides your status
| Client | Who decides | Who pays the tax if inside |
|---|---|---|
| Medium or large private sector, or any public body | The client, in a Status Determination Statement | The fee-payer deducts tax and National Insurance |
| Small private sector client | Your own company | Your company, through a deemed payment at the year end |
A company is "small" if it meets two of: turnover up to £15 million, balance sheet up to £7.5 million, up to 50 employees (from April 2025).
HMRC can check at any time
HMRC reviews tax returns, audits business records, contracts and working practices, and follows up tips. Typical triggers: unusually high expenses, a business with many contractors and few employees, or a complaint from a former colleague or competitor.
How to protect your business
- A professional contract reviewA specialist spots clauses that look like employment and helps you renegotiate them before you start.
- IR35 insuranceBasic cover pays legal costs if HMRC opens an enquiry; fuller cover can also pay the tax.
- HMRC's CEST toolFree. Answer honestly and HMRC will stand by the result. Save the PDF.
- A working practices diaryRecord when you turned work down, used your own equipment, or worked for several clients at once.
- A contract for resultsNot "help with marketing", but "deliver a new website by 1 December", with your right to send a substitute and use your own tools.
Together they work like a belt and braces: the review finds the risks, insurance covers them, CEST gives HMRC's own view, the diary proves your case, and the contract sets the rules.
Working from abroad or for overseas clients
If you are UK tax resident, IR35 follows you wherever you work. What matters is your tax residence, where the client is, and whether the UK taxes your income. If you are not UK resident and not paid through UK tax, IR35 usually does not apply, but other countries have similar rules. Read foreign income.
IR35 and CIS in construction
The Construction Industry Scheme deducts tax from payments to subcontractors. IR35 asks a different question: is the relationship really employment? Being registered for CIS does not protect you. If the work looks like employment, HMRC can apply the IR35 rules regardless. Contractors who churn through subcontractors without clear documentation attract attention.
Quick IR35 self-check
A first indication only. HMRC looks at the whole picture, and its CEST tool gives a view HMRC will stand by.
What to prepare
0 of 5 ready
One piece of advice
IR35 is not only about getting the paperwork right. Make sure the way you actually work matches what the contract says, because HMRC looks at the real situation, not just the paper.
Test yourself
1. Who decides IR35 status when you work for a large company?
Medium and large clients must issue a Status Determination Statement.
2. Which is a sign of being outside IR35?
A genuine right of substitution points to a business.
3. Does CIS registration protect a builder from IR35?
HMRC can apply IR35 regardless of CIS.
4. Will HMRC stand by a CEST result?
HMRC stands by CEST results based on accurate information.
Law and sources
- GOV.UK: understanding off-payroll working (IR35)The rules from April 2021
- GOV.UK: Check employment status for tax (CEST)HMRC's free status tool
- Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapters 8 and 10The intermediaries legislation
- HMRC Employment Status Manual ESM0500Control, substitution and mutuality
- Companies Act 2006, section 382The small company test
This guide explains the rules in general terms as at 5 October 2026. It is not advice for your situation. Rules and rates change.
