IR35, or the off-payroll working rules, continues to be a major focus for UK contractors. Designed by HMRC to tackle ‘disguised employment’, IR35 ensures that workers who would have been employees if they were providing their services directly pay broadly the same Income Tax and National Insurance as employees for the 2026/27 tax year.
Inside vs. Outside IR35
- Inside IR35: You are considered an employee for tax purposes. You must pay Income Tax and NI via PAYE.
- Outside IR35: You are considered a genuine business operating on your own account. Compare the differences in net pay using our IR35 Calculator or evaluate sole trader structures on our Sole Trader vs Director Calculator.
Frequently Asked Questions (FAQ)
Q: What is the difference between Inside and Outside IR35?
A: Inside IR35 means you are taxed as an employee under PAYE, while Outside IR35 means you are a self-employed business and can pay yourself via a combination of salary and dividends.
Q: Who determines my IR35 status?
A: For medium and large businesses and all public sector clients, the client determines your status. For small private sector clients, you are responsible for making the determination.
Q: Can I work through an umbrella company?
A: Yes, if a contract is Inside IR35, many contractors work through an umbrella company which acts as the employer and handles all PAYE tax deductions.