1
Who decides my IR35 status?
For medium and large clients, the end client makes the determination and must issue you a Status Determination Statement. For small companies, you self-determine your own status.
UKTax & Payroll
What Is IR35?
By PayMetric Labs Research Desk
Short answer
IR35 is UK tax legislation that decides whether a contractor working through a limited company is taxed as a genuine business (outside IR35) or as a disguised employee (inside IR35).
IR35 exists to stop contractors getting the tax advantages of running a limited company while actually working like a regular employee. If your contract and working practices look like employment (fixed hours, no right to send a substitute, your client controls how and when you work), HMRC treats you as inside IR35: you're taxed at PAYE rates on income from that contract, and most of the tax efficiency of a limited company disappears.
If your engagement is genuinely a business-to-business relationship, that is, you carry financial risk, control how the work gets done, and could send someone else to do it, you're outside IR35 and can extract income through a salary and dividend mix.
Since April 2021, medium and large private-sector clients decide your IR35 status, not you. Only small companies (under two of: £15m turnover, £7.5m balance sheet, 50 employees) leave the determination to the contractor. The financial gap is real: on a £500 day rate, inside-IR35 take-home can run £15,000-£20,000 a year lower than outside.
Frequently asked questions
2
Can I appeal an inside IR35 determination?
Yes. Clients must run a status disagreement process if you challenge their determination, and must respond within 45 days.
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This glossary entry is for general information only and does not constitute financial, tax, or legal advice. Rates and thresholds shown reflect current published guidance and may change.