EMPLOYEE OR CONTRACTOR?

The key question is whether an engagement amounts to a contract of service or a contract for service. If it's a contract of service, IR35 applies and a deemed payment must be calculated, with tax and National Insurance contributions paid accordingly. If it's a contract for service, the worker is genuinely self-employed and IR35 does not apply — with the tax advantage that more expenses can be claimed and income can be drawn as a mix of salary and dividends.

Since 2017 (public sector) and 2021 (private sector), who actually makes this determination depends on your end client's size. If your client is medium or large, they assess your status and issue a Status Determination Statement — the guidance below is still useful context, but the decision itself sits with them, not you. If your client is a small business (and note: the size thresholds increased again from 6 April 2026, meaning around 14,000 previously-medium businesses now count as small), responsibility for self-assessing falls to you and your limited company, and the guidance below is directly actionable.

In order to determine whether IR35 applies, matters such as control, financial risk, substitution, provision of equipment, right of dismissal and employee benefits need to be considered. If your contract has the same level of risk, responsibility, liability and control as a permanent employee, you would be affected by IR35 legislation. If you're responsible for your own status assessment (a small or overseas client), the following can help keep you outside IR35:

• Control - try to ensure you are not managed by your client.

• Financial risk - if possible quote for work rather than receive a daily rate.

• Substitution - ensure your contract allows you to use somebody other than yourself.

• Provision of equipment - use your own equipment where possible.

• Right of dismissal - your contract should allow immediate termination.

• Employee benefits - you should not receive holiday pay, be invited to Xmas dinners etc.

If you're inside IR35, there can still be benefits to trading through a limited company, such as claiming travelling expenses. However, the flat 5% expense allowance is no longer available to most contractors — it was withdrawn for public sector engagements from April 2017 and for most private sector engagements from April 2021. It remains available only if your own company is still responsible for determining your status: broadly, if your end client is a small private business or based wholly overseas. If your client is medium or large and determines you're inside IR35, you'll typically be taxed at source via PAYE by the client or agency, and the 5% allowance won't apply.  IR35 is complex. Consideration of the points above will help keep you outside IR35.

Contractor Pages ► Contractors & Freelancers ■ IR35 & Personal Service Companies ■ IR35 Advice ■

■ IR35 Employment Status ■ Advantage of Separate Contracts for Each Project ■ IR35 Case Law ■

■ Engaging as Employee or Contractor ■ IR35 Status Review ■ Contractor Expenses Guide ■

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