Inside or outside IR35?
Outside IR35 means the engagement is genuinely business to business: you invoice through your company and pay corporation tax and dividend tax. Inside means it is treated as employment, with income tax and National Insurance on the fee and employer NI taken from the assignment rate. Status is decided per engagement, on how the work is really organised.
Two labels that carry more emotional weight than financial. Understanding which applies matters; assuming that inside means unviable costs contractors more than the tax does.
The practical differences
| Outside | Inside | |
|---|---|---|
| How you are paid | Invoice from your company | Deemed employment payment, or an umbrella |
| Company tax | Corporation tax on profit | Not applicable to the engagement |
| Your tax | Salary plus dividends | Income tax and employee NI on the fee |
| Employer NI | Only on the salary you choose | 15%, taken from the assignment rate |
| Expenses | Ordinary business expenses | Very limited |
| Leaving money in | Possible, and taxed once | Not possible — it is all paid out |
That last row is where a company genuinely wins and where the simple take-home comparison misses it. Profit left in the company is taxed once, at corporation tax rates, until you draw it — which for someone building a buffer or funding a quiet quarter is worth more than the headline gap.
What decides which you are
The status tests in full, but in practice three questions carry most of the weight: could you genuinely send a substitute, how far does the client direct your work, and is there an obligation to offer and accept work.
What does not decide it: what the contract is called, whether you have other clients, whether you invoice, or whether the client says so. A blanket determination applied to everyone is evidence about the client's risk appetite, not about your role.
Not sure which side you are on?
Describe how the engagement actually works — who directs it, whether substitution is real, whether they must offer you work. We will give you a straight assessment, and tell you what each outcome is worth in cash.
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Free assessment first. If there is work to do, you get a fixed quote in writing before anything starts.
If you have been determined inside
- Check the reasons. A determination must be given with reasons; one issued as blanket policy is worth disputing.
- Compare it to the working week, not to the contract.
- Run the numbers — the gap is smaller than the reputation. The calculator does it on your rate.
- Decide about the company separately. Keeping it dormant costs little and keeps options open; closing it is a bigger decision than one contract warrants.
- Compare umbrella offers properly — see umbrella companies, because the headline rates are not comparable.
Questions people ask
What does outside IR35 mean?
That the engagement is genuinely a business-to-business arrangement rather than disguised employment. You invoice through your company, pay corporation tax on the profit and personal tax on what you draw.
What does inside IR35 mean?
That the engagement looks like employment for tax purposes. The fee is taxed as employment income, with income tax and National Insurance deducted, and employer National Insurance coming out of the assignment rate.
Can I be both in the same year?
Yes, and it is common. Status is determined per engagement, so one contract can be inside while another is outside. What you cannot do is treat identical working arrangements differently because one client asked and the other did not.
Does being inside mean I should close my company?
Not necessarily. A company still gives you the ability to take other work, to leave profit in the business, and to make employer pension contributions. Closing it is a decision worth taking on the next twelve months, not on one determination.
Is an outside contract always worth more?
In take-home, yes, but by less than most expect — roughly 3% to 5% of what you bill. Turning down a well-paid inside contract for a lower-paid outside one usually loses money, and that arithmetic is worth doing before the decision rather than after.
Who is liable if the determination is wrong?
Where the client is public sector or a medium or large private business, liability sits with the client or the fee-payer in the chain. Where the client is small, it stays with your own company — which is the case where getting it right matters most to you personally.
Figures are for the tax year shown and change every April. They are general information, not advice — we check the current position for your circumstances before anything is filed.
Reviewed 19 October 2026.
Part of our work on contracting and ir35 — if you want someone to take it off your hands, start with our accountant for contractors page.