IR35 is a piece of tax law which aims to make the amount of tax paid by employees and the self-employed level.
“Inside IR35” means you’re being classified as an employee, and will be taxed at source.
“Outside IR35” means the contract is treating you as a self-employed supplier, and you’ll be liable for paying your taxes.
IR35 only applies to intermediataries (IR35 stands for Intermediataries Regulation 35), i.e. if you’re working via a company, rather than directly as a sole-trader. This applies perhaps when you’re the owner of a limited company, often called a personal service company (PSC), or perhaps via an agency or umbrella company.
If you are working “Inside IR35”, it’s likely you’ll be treated as an employee, but without any employee rights or benefits (i.e. sick pay). Read the guides on the different types of worker status, and what it means to be an employee without rights.
IR35 applies to contracts, not people - so you might be “inside” for one contract, and “outside” for another.
Generally, your client (the hirer) is responsible for making this determination (unless they are a small company, in which case you are responsible).
IR35 is a contraversial and hotly debated piece of legislation, so you’re likely to see much debate over its fairness.
Unfortunately, it’s also complex and commonly misunderstood by freelancers and clients alike.
HMRC can, at any time, investigate your contracts and working arrangements, and this can be costly in time and money - even if you’ve done nothing wrong. Having protection in place (like good contracts, understanding IR35, and insurance with IR35 investigation cover) is sensible.
If you’re a sole trader, IR35 does not apply to you - but you will still need to be aware of your employee status.
Understanding IR35 is essential, as you’re likely to come across it, even if it doesn’t directly apply to you.