IR35 (Off-Payroll Working Rules)
UK tax glossary · Last reviewed: April 2026
IR35 (formally the off-payroll working rules) applies where a contractor provides services through an intermediary (usually a personal service company) but would be treated as an employee if engaged directly. Inside IR35, the fee-payer deducts PAYE and NI as if the contractor were an employee.
From April 2021, responsibility for determining IR35 status shifted from the contractor to the end client (the business engaging the contractor), except for small private-sector businesses. The client must provide a Status Determination Statement (SDS) using HMRC's CEST tool.
Contractors inside IR35 are taxed at employment rates but receive none of the statutory rights of employees (holiday pay, sick pay, etc.). Many contractors have moved to umbrella companies or sought outside-IR35 roles. False determinations can attract significant PAYE liabilities for the end client.
Common questions
What is the 'deemed salary' under IR35?
The deemed salary is 95% of the contract fee received by the personal service company (5% is allowed for expenses). PAYE and NI are calculated on this deemed salary if the engagement is inside IR35.
What makes a contract 'outside IR35'?
The key tests are: right of substitution (can you send someone else?), control (does the client control how you work?), and mutuality of obligation (is there an obligation to offer and accept work?). A contract outside IR35 gives the contractor more independence.
Related resources
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.