What Is Inside IR35 vs Outside IR35?

The difference comes down to control, substitution, and risk. Inside IR35 looks like: your client sets your hours and tells you how to do the work, you can't send a substitute in your place, and you carry no financial risk if the work goes wrong. Outside IR35 looks like: you control how and when the work gets done, you could genuinely send someone else, and you'd be liable for correcting your own mistakes at your own cost.

Tax treatment differs sharply. Inside IR35, the fee-payer deducts Income Tax and National Insurance from your day rate before you're paid, roughly the same as being on the client's payroll. Outside IR35, your limited company invoices gross, pays Corporation Tax on profit, and you extract the rest via salary and dividends, which is materially more tax-efficient at most rate levels.

Most contractors don't get to choose freely: the client's Status Determination Statement decides it for you if they're medium or large. What you can control is negotiating contract terms and working practices that genuinely reflect an outside-IR35 relationship before you sign.