| Key question | would the contractor be the client's employee without their company? |
| Who decides | public sector and medium or large private clients; for small clients, the contractor's company |
| Consequence | income tax and National Insurance as for an employee |
| Clients with no UK connection | the rules do not apply to them; the contractor's company assesses |
What IR35 is about
Many skilled people in the UK work not as employees but through their own limited company. The company invoices the client, and the contractor pays themselves through salary and dividends. The off-payroll rules, usually still called IR35 after the old reference, apply where the contractor would be the client's employee if they provided the services directly, without their company.
If the rules apply, the fee is taxed largely like employment income: with income tax and employee and employer National Insurance. The advantage of the company then shrinks considerably. Which legal form pays for the self-employed without this problem is in sole trader or limited company.
Who makes the decision
Since the reform the status decision mostly lies with the client. The rules apply to all public sector clients and to medium and large private sector businesses. They make the decision, give reasons in a written status determination statement and pass it to the contractor and any agency. Whoever contracts directly with the contractor's company is then the deemed employer and deducts income tax and National Insurance.
With small private sector clients the decision stays with the contractor's company. If the rules apply, it must calculate a deemed employment payment itself and pay income tax and National Insurance on it. If the contractor disagrees with a client's decision, the client must respond within 45 days.
Whether a client is small, medium or large depends on turnover, balance sheet total and staff. HMRC's guidance for clients currently names two of three criteria: more than £10.2 million turnover, more than £5.1 million balance sheet total, more than 50 employees. The general company size thresholds were raised for periods from 6 April 2025; which limit applies to your client in a given tax year we check case by case. If a group's parent is medium or large, the rules apply to its subsidiaries too.
A client based entirely abroad with no connection to the UK does not have to apply the off-payroll rules. Then the contractor's company assesses itself. A client has a UK connection if it is resident there or has a permanent establishment there. So if you have a branch or a subsidiary in the UK, you are back in the middle of it. What a permanent establishment is, our piece branch or subsidiary explains.
What to do as a contractor
If you work through your limited company for a UK client:
- 1
1. Classify the client
Public sector, medium or large business, small business, or a client with no UK connection? That decides who determines status.
- 2
2. Ask for the decision
With medium and large clients: ask for the status determination statement with reasons and check it. If you disagree, the 45-day period runs.
- 3
3. Assess yourself
With small clients or clients with no UK connection: assess yourself. HMRC's online CEST tool reflects HMRC's view, and HMRC stands by the result as long as the information is accurate.
- 4
4. Account for it
If the rules apply, it runs through payroll, at the client or at your company. How UK payroll works is under UK Payroll.
And at home?
The UK rules only decide UK tax. If you live abroad and work through a UK company, you must also look at the rules at home: on false self-employment and social security, and on where the UK company is actually managed. A UK company run from a desk in another country may be taxable there. These questions belong in a conversation before the contract is signed; the treaty side is in the UK's tax treaties.
Frequently asked questions
What does outside IR35 mean?
The status determination finds that the contractor is not a disguised employee. The fee is then taxed normally through their company.
Does IR35 apply to sole traders?
The off-payroll rules concern contractors working through their own intermediary company. For sole traders the general question of whether they are self-employed or employed applies.
We are a company abroad engaging a contractor with a London limited company. Must we assess?
Only if you have a UK connection, meaning you are resident there or have a permanent establishment, and are medium or large. Otherwise the contractor's company assesses.
Sources: GOV.UK: Understanding off-payroll working (IR35); GOV.UK: Off-payroll working for clients; GOV.UK: Off-payroll working for intermediaries (small clients); GOV.UK: Check employment status for tax (CEST); GOV.UK: Audit exemption for private limited companies (size thresholds from 6 April 2025)
