What does inside IR35 mean?

What is IR35?

IR35 is a legislation used to determine a contractor’s working status by looking at their levels of risk, liability and responsibility in the workplace.

You can either fall ‘outside or ‘inside’ of IR35.

If a contract shows that a worker has the same level of risk, liability and responsibility as other contractors, they will be seen as ‘outside’.

If, however, a contract is seen as being similar to that of a permanent employee, then the worker will fall ‘inside’.

Each contract is treated separately, which means it’s possible for an IR35 status to change with each client.

Read our Guide to IR35 page for more information.

How is a contractor’s IR35 status decided?

Before April 2021, contractors would work out their own status, however, it is now the responsibility of the client to make that decision.

Unfortunately, these changes have proved problematic for those in the self-employed sector due to many businesses feeling that it is ‘safer’ to blanket-access all of their contractors as being inside IR35 to avoid giving the wrong status.

There is a government tool called the Check Employment Status for Tax (CEST), which can be used to determine a worker’s employment status by looking at the contractor’s personal service, control and mutuality of obligation.

However, CEST has been criticised due to reports showing that it has often failed to deliver by not always giving an accurate employment status determination.

Read our IR35 Rules page for more guidance on what HMRC considers when looking at a contract.

So, what does inside IR35 mean for contractors?

As mentioned previously, falling inside means that you’re seen as having a similar setup to those who are employed.

This means being subject to the same tax rates and National Insurance (NI) as an employee, which can consequently result in paying more than you would if you were outside IR35.

Your status will also have an effect on your self-employed benefits – you’ll be more limited when it comes to the type of expenses you’re allowed to claim back on.

You can see why IR35 is a topic that has caused so much debate and criticism over the years when you consider the fact that not only can it be difficult to clarify a status, but being put in the wrong category can cost you benefits that you might otherwise have been entitled to.

We hope you found this page helpful. If you have any further questions about IR35 or anything else, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.