IR35 — the off-payroll working rules — tests whether a contractor working through their own limited company is, in substance, an employee of the client. If you are inside IR35, broadly employment-level tax applies and most of the salary-plus-dividend advantage of going limited disappears; if you are outside, the limited-company route can be genuinely tax-efficient. Since 6 April 2021, medium and large private-sector clients decide your status and the fee-payer runs PAYE when you are inside. Small clients are exempt — a client is small if it does not meet two or more of: turnover over £10.2m, balance sheet over £5.1m, more than 50 employees — and then your own company decides its status. So whether going limited is worth it depends partly on whether your contracts sit outside IR35. Here is how the rules work, who decides, and what they mean for the decision to go limited.
General guidance for UK directors and contractors, not personal tax advice. Status depends on your actual working arrangements — get a specific contract reviewed.
What is IR35 and who does it apply to?
IR35 applies to anyone providing their work through an intermediary — usually their own limited company, often called a personal service company (PSC) — to an end client. The rules ask a single question: strip away the company in the middle, and would you look like an employee of that client? If yes, you are inside IR35; if the relationship is genuinely that of a business supplying a service, you are outside (gov.uk).
The difference is money. Outside IR35, you can pay yourself a small salary plus dividends and run legitimate company expenses — the structure that makes going limited attractive. Inside IR35, the engagement is taxed broadly like employment: PAYE and National Insurance apply to the fee, and the dividend efficiency largely falls away. For a contractor weighing the move, that single distinction often decides whether a limited company pays off at all.
It is worth being clear about what IR35 is not. It does not stop you operating through a limited company, and it has not been abolished — proposals to repeal the 2021 changes were reversed before they took effect. The rules are very much live, which is why getting your status right matters.
Who decides your IR35 status now?
Since 6 April 2021, in the private sector the end client decides your IR35 status if that client is medium or large — and where you are found inside, the fee-payer (the client or the agency that pays your company) operates PAYE and deducts tax and National Insurance before you are paid (gov.uk). Before 2021 the contractor's own company made that call; that responsibility shifted up the chain for larger clients.
The exception that catches many contractors by surprise is the small-client exemption. A client counts as small if it does not meet two or more of these three thresholds:
Test
Small if it does NOT exceed
Annual turnover
£10.2m
Balance sheet total
£5.1m
Number of employees
50
When the end client is small, the off-payroll rules do not apply to it and your own company decides your status and accounts for any tax due — the pre-2021 position. So who carries the decision depends entirely on the size of the client you are contracting for. HMRC's CEST tool (Check Employment Status for Tax) gives an indicative status either way, though it is a guide, not a guarantee.
Status is not about your job title or what the contract is called — it is about how you actually work. Three factors carry most of the weight (gov.uk):
Control — how much the client directs what you do, how, when and where. A genuine contractor decides the how; an employee is told.
Personal service and substitution — must you do the work, or could you send a qualified substitute in your place? A real right to substitute points away from employment.
Mutuality of obligation — whether the client is obliged to offer work and you are obliged to accept it on an ongoing basis, as an employee would be, rather than engagement by engagement.
Other pointers feed in too — whether you take financial risk, use your own equipment, and are integrated into the client's team like staff. No single factor settles it; HMRC and the courts look at the whole picture. Because the assessment turns on your specific contract and working practices, a contract and working-practices review is the sensible step before you rely on being outside — and it is exactly the kind of work a specialist accountant handles.
Does IR35 change whether you should go limited?
This is the question that should drive the decision, and the honest answer is: yes, IR35 can change the maths entirely. The salary-plus-dividend advantage that makes a limited company attractive only lands when your contracts are outside IR35. If most of your work sits inside, the engagement is taxed broadly like employment, the dividend efficiency disappears, and you are left carrying the admin of a company — accounts, a Company Tax Return, a confirmation statement, possibly VAT — for little tax upside.
So the picture splits roughly two ways. If you contract outside IR35 on an ongoing basis at a reasonable day rate, going limited can be genuinely worth it, and the comparison worth running is umbrella versus your own company — our guide on umbrella vs limited company walks through the take-home difference. If you are mostly inside IR35, on a short engagement, or you simply want zero admin, an umbrella or staying employed may serve you better — and if you are coming from sole-trader work, sole trader vs limited company is the comparison to start with.
The contractors we match with accountants almost always start with the same worry — am I inside IR35? — and the honest answer shapes whether going limited is worth it at all. That is where a partner earns their fee: reviewing your actual contracts before you commit, not after.
We are a connector, not the accountant signing your return — we help you weigh the decision and match you with a partner accountant who will review your contracts and confirm whether the limited route actually pays off for you. If your work is reliably outside IR35, the answer is often yes; if it is not, a good adviser will tell you so before you incorporate. You can see the kind of support our partners offer on our accountancy page.
A quick word on getting it wrong
Getting your status wrong is not a minor admin slip. Where a medium or large client decides you are inside and you have been paying yourself as if outside, the tax can be reclaimed — and where your own small-client engagement is later judged inside, the liability sits with your company. That is the case for treating the status question as the first thing to settle, not the last. Decide the IR35 position, then decide whether to go limited — in that order.
IR35 does not decide whether you can go limited; it decides whether going limited is worth it. Settle that one question and the rest of the move gets a lot clearer. Our free guide walks through the limited-company route end to end, so you can read the structure with your own IR35 position in mind.
What is IR35 in simple terms?
IR35 is a set of rules that checks whether a contractor working through their own limited company is really an employee of the client in all but name. If you are "inside IR35", you are taxed broadly like an employee on that work; if you are "outside", you are treated as a genuine business and can pay yourself in the more tax-efficient salary-and-dividends way.
Who is responsible for IR35?
Since 6 April 2021, in the private sector a medium or large end client decides your status, and the fee-payer (the client or agency paying your company) deducts PAYE tax and National Insurance if you are inside. If the end client is small, your own company decides its status and accounts for any tax due — the position that applied before 2021.
How do I know if I'm inside or outside IR35?
It depends on how you actually work, judged mainly on control, personal service and substitution, and mutuality of obligation. HMRC's CEST tool gives an indicative result, but it is a guide rather than a guarantee — for anything that matters, get the contract and your working practices reviewed by a specialist.
Does IR35 apply to small companies?
The off-payroll rules do not apply to a small end client — one that does not meet two or more of: turnover over £10.2m, balance sheet over £5.1m, or more than 50 employees. When the client is small, your own company decides your IR35 status rather than the client. The rules still exist; the responsibility simply sits with you.
Can I still use a limited company if I'm inside IR35?
Yes — IR35 does not stop you trading through a limited company. But inside IR35 your work is taxed broadly like employment, so much of the salary-plus-dividend advantage falls away, and you still carry the company admin. Many contractors who are mostly inside find an umbrella or employment simpler, which is why the status question should drive the go-limited decision.
IR35 — the off-payroll working rules — tests whether a contractor working through their own limited company is, in substance, an employee of the client. If you are inside IR35, broadly employment-level tax applies and most of the salary-plus-dividend advantage of going limited disappears; if you are outside, the limited-company route can be genuinely tax-efficient. Since 6 April 2021, medium and large private-sector clients decide your status and the fee-payer runs PAYE when you are inside. Small clients are exempt — a client is small if it does not meet two or more of: turnover over £10.2m, balance sheet over £5.1m, more than 50 employees — and then your own company decides its status. So whether going limited is worth it depends partly on whether your contracts sit outside IR35. Here is how the rules work, who decides, and what they mean for the decision to go limited.
General guidance for UK directors and contractors, not personal tax advice. Status depends on your actual working arrangements — get a specific contract reviewed.
What is IR35 and who does it apply to?
IR35 applies to anyone providing their work through an intermediary — usually their own limited company, often called a personal service company (PSC) — to an end client. The rules ask a single question: strip away the company in the middle, and would you look like an employee of that client? If yes, you are inside IR35; if the relationship is genuinely that of a business supplying a service, you are outside (gov.uk).
The difference is money. Outside IR35, you can pay yourself a small salary plus dividends and run legitimate company expenses — the structure that makes going limited attractive. Inside IR35, the engagement is taxed broadly like employment: PAYE and National Insurance apply to the fee, and the dividend efficiency largely falls away. For a contractor weighing the move, that single distinction often decides whether a limited company pays off at all.
It is worth being clear about what IR35 is not. It does not stop you operating through a limited company, and it has not been abolished — proposals to repeal the 2021 changes were reversed before they took effect. The rules are very much live, which is why getting your status right matters.
Who decides your IR35 status now?
Since 6 April 2021, in the private sector the end client decides your IR35 status if that client is medium or large — and where you are found inside, the fee-payer (the client or the agency that pays your company) operates PAYE and deducts tax and National Insurance before you are paid (gov.uk). Before 2021 the contractor's own company made that call; that responsibility shifted up the chain for larger clients.
The exception that catches many contractors by surprise is the small-client exemption. A client counts as small if it does not meet two or more of these three thresholds:
Test
Small if it does NOT exceed
Annual turnover
£10.2m
Balance sheet total
£5.1m
Number of employees
50
When the end client is small, the off-payroll rules do not apply to it and your own company decides your status and accounts for any tax due — the pre-2021 position. So who carries the decision depends entirely on the size of the client you are contracting for. HMRC's CEST tool (Check Employment Status for Tax) gives an indicative status either way, though it is a guide, not a guarantee.
Status is not about your job title or what the contract is called — it is about how you actually work. Three factors carry most of the weight (gov.uk):
Control — how much the client directs what you do, how, when and where. A genuine contractor decides the how; an employee is told.
Personal service and substitution — must you do the work, or could you send a qualified substitute in your place? A real right to substitute points away from employment.
Mutuality of obligation — whether the client is obliged to offer work and you are obliged to accept it on an ongoing basis, as an employee would be, rather than engagement by engagement.
Other pointers feed in too — whether you take financial risk, use your own equipment, and are integrated into the client's team like staff. No single factor settles it; HMRC and the courts look at the whole picture. Because the assessment turns on your specific contract and working practices, a contract and working-practices review is the sensible step before you rely on being outside — and it is exactly the kind of work a specialist accountant handles.
Does IR35 change whether you should go limited?
This is the question that should drive the decision, and the honest answer is: yes, IR35 can change the maths entirely. The salary-plus-dividend advantage that makes a limited company attractive only lands when your contracts are outside IR35. If most of your work sits inside, the engagement is taxed broadly like employment, the dividend efficiency disappears, and you are left carrying the admin of a company — accounts, a Company Tax Return, a confirmation statement, possibly VAT — for little tax upside.
So the picture splits roughly two ways. If you contract outside IR35 on an ongoing basis at a reasonable day rate, going limited can be genuinely worth it, and the comparison worth running is umbrella versus your own company — our guide on umbrella vs limited company walks through the take-home difference. If you are mostly inside IR35, on a short engagement, or you simply want zero admin, an umbrella or staying employed may serve you better — and if you are coming from sole-trader work, sole trader vs limited company is the comparison to start with.
The contractors we match with accountants almost always start with the same worry — am I inside IR35? — and the honest answer shapes whether going limited is worth it at all. That is where a partner earns their fee: reviewing your actual contracts before you commit, not after.
We are a connector, not the accountant signing your return — we help you weigh the decision and match you with a partner accountant who will review your contracts and confirm whether the limited route actually pays off for you. If your work is reliably outside IR35, the answer is often yes; if it is not, a good adviser will tell you so before you incorporate. You can see the kind of support our partners offer on our accountancy page.
A quick word on getting it wrong
Getting your status wrong is not a minor admin slip. Where a medium or large client decides you are inside and you have been paying yourself as if outside, the tax can be reclaimed — and where your own small-client engagement is later judged inside, the liability sits with your company. That is the case for treating the status question as the first thing to settle, not the last. Decide the IR35 position, then decide whether to go limited — in that order.
IR35 does not decide whether you can go limited; it decides whether going limited is worth it. Settle that one question and the rest of the move gets a lot clearer. Our free guide walks through the limited-company route end to end, so you can read the structure with your own IR35 position in mind.
What is IR35 in simple terms?
IR35 is a set of rules that checks whether a contractor working through their own limited company is really an employee of the client in all but name. If you are "inside IR35", you are taxed broadly like an employee on that work; if you are "outside", you are treated as a genuine business and can pay yourself in the more tax-efficient salary-and-dividends way.
Who is responsible for IR35?
Since 6 April 2021, in the private sector a medium or large end client decides your status, and the fee-payer (the client or agency paying your company) deducts PAYE tax and National Insurance if you are inside. If the end client is small, your own company decides its status and accounts for any tax due — the position that applied before 2021.
How do I know if I'm inside or outside IR35?
It depends on how you actually work, judged mainly on control, personal service and substitution, and mutuality of obligation. HMRC's CEST tool gives an indicative result, but it is a guide rather than a guarantee — for anything that matters, get the contract and your working practices reviewed by a specialist.
Does IR35 apply to small companies?
The off-payroll rules do not apply to a small end client — one that does not meet two or more of: turnover over £10.2m, balance sheet over £5.1m, or more than 50 employees. When the client is small, your own company decides your IR35 status rather than the client. The rules still exist; the responsibility simply sits with you.
Can I still use a limited company if I'm inside IR35?
Yes — IR35 does not stop you trading through a limited company. But inside IR35 your work is taxed broadly like employment, so much of the salary-plus-dividend advantage falls away, and you still carry the company admin. Many contractors who are mostly inside find an umbrella or employment simpler, which is why the status question should drive the go-limited decision.
