For contractors and limited company owners, few compliance issues cause more anxiety than IR35 legislation. It affects how much tax you pay, how you work, and how much you keep. Get it wrong and the costs can be significant. Get it right and you stay compliant while protecting your income.
Understanding IR35 isn't just about avoiding penalties.
It’s about clarity, confidence, and making your business structure work for you.
IR35, officially known as the Intermediaries Legislation, was introduced in 2000 by HMRC to prevent ‘disguised employment’. This is where individuals work like employees but operate through their own limited companies to pay less tax.
In simple terms, IR35 determines whether you are genuinely self-employed or effectively working as an employee.
If you’re inside IR35, HMRC views you as an employee for tax purposes. This means you must pay income tax and National Insurance like any other employee. If you’re outside IR35, you’re considered a legitimate business, free to manage your own tax affairs and benefit from greater financial flexibility.
Being outside IR35 means you’re recognised as genuinely self-employed. You have full control over how, when and where you work, and can send a substitute to complete work if needed.
From a financial perspective, there are substantial outside IR35 tax benefits.
You can:
Draw income through a mix of salary and dividends for greater efficiency
Claim legitimate business expenses like travel, equipment and insurance
Manage your own working terms and maintain control over your contracts
However, staying compliant requires attention to detail. HMRC looks closely at both your contracts and your day-to-day working practices when determining your status.
The core distinction lies in control and financial responsibility. Contractors inside IR35 operate under terms similar to employees. The client controls how they work and tax is deducted at source through PAYE. These contractors cannot claim many business expenses and their take-home pay is typically lower as a result.
If you’re outside IR35, you’re treated as an independent business. You decide how and when to deliver your services, carry the commercial risk and manage your own taxes. This autonomy leads to greater flexibility and, in many cases, higher net earnings. It also puts the responsibility on contractors to ensure their contracts and working arrangements clearly support their self-employed status.
HMRC assesses IR35 status using three key tests: control, mutuality of obligation, and right of substitution. Even small details in your contracts, such as clauses about working hours, reporting structures or replacement rights, can influence your classification.
If you’re unsure where you stand, it’s vital to review your setup now.
IR35 compliance is not just about avoiding fines, it’s about protecting your business, ensuring efficiency and keeping more of what you earn.
At Link Up, we help contractors and limited company owners understand and maintain their IR35 compliance. Our Free IR35 Health Check reviews your contracts and working practices to ensure you’re correctly classified, compliant and optimising your tax position.
Don’t leave your IR35 status to chance. Claim your free IR35 Health Check today and take the first step toward clarity, compliance and financial peace of mind.
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