IR35 Status Checker & Off-Payroll Tax Calculator

IR35 — formally the off-payroll working rules — determines whether a contractor working through a limited company (often called a Personal Service Company, or PSC) is treated as an employee for tax purposes. HMRC introduced the rules to prevent what it describes as "disguised employment", where contractors take home significantly more than employees doing equivalent work simply by structuring income through a company.

The key test is the nature of the working relationship: control, substitution, and mutuality of obligation. If you work under the client's direction, cannot send a substitute, and are expected to be available continuously, you are likely inside IR35. The full factor-by-factor breakdown is below.

Inside IR35: Deemed Employment

Inside IR35 with a medium or large client, the fee-payer (your client or agency) deducts income tax and employee National Insurance from your contract income under PAYE before paying your company. With a small or wholly-overseas client, your own company runs the equivalent deemed employment payment calculation instead — and only that self-calculated route keeps the 5% flat-rate deduction for general expenses (our calculator models this route). Employer's National Insurance (currently 15% from April 2025 on income above £5,000) is also subtracted from the gross contract value. The result is a tax burden very similar to direct employment.

Outside IR35: Business Structure

Outside IR35, your limited company receives the full contract income. The most tax-efficient approach is to pay yourself a small director's salary (typically the Personal Allowance of £12,570 so no income tax is due) and draw the remaining post-corporation-tax profit as dividends. Dividends are taxed at lower rates and there is no employer's NI on dividends, resulting in meaningfully higher take-home pay — see the comparison table above for exact figures at your day rate.

Our Step 1 checker above scores eight factors: three "primary" factors that carry double weight because case law treats them as the irreducible minimum of employment, and five "secondary" factors that tip a borderline case one way or the other. None of this replaces HMRC's own Check Employment Status for Tax (CEST) tool — CEST is the official determination aid; our checker is the financial impact layer on top, showing what each answer is worth in take-home pay once you already have a view on status.

The three primary factors

Personal service / right of substitution. Can you send someone else to do the work without the client's say-so? An unfettered right of substitution is one of the strongest indicators of self-employment (Express & Echo Publications v Tanton); no right to substitute at all points firmly towards employment.

Control. Does the client dictate how, when, and where you work, or do you decide the method yourself once the deliverable is agreed? Client-directed working — especially set hours, a fixed location, and day-to-day supervision — is a classic employment marker.

Mutuality of obligation (MOO). Is there an ongoing expectation that the client will keep offering work and you'll keep accepting it, or is the engagement a discrete project with a defined end? Genuine project-based, no-obligation-beyond-the-contract work points outside IR35; an open-ended "next task" relationship points inside.

The five secondary factors

Financial risk. Fixed-price work, rectifying mistakes at your own cost, or gaps between invoices being paid all show you're bearing business risk rather than being paid regardless of outcome.

Equipment and tools. Providing your own significant equipment — laptop, specialist software licences, tools of the trade — supports being in business on your own account; relying entirely on the client's kit and systems looks more like employment.

Integration. Are you "part and parcel" of the client's organisation — an internal job title, a place on the staff list, line-managing or being line-managed by employees — or do you remain clearly identifiable as an outside supplier?

Exclusivity. Working for several clients concurrently is a hallmark of a genuine business; being contractually or practically tied to one client raises the risk of being treated as employed.

Business on your own account. A company that markets itself, holds its own insurance, and has served multiple clients over time looks like a business; a company that exists solely to service one engagement is a long-standing HMRC concern (the "managed service company" pattern).

Since 6 April 2021, responsibility for determining IR35 status — and the tax risk if it's got wrong — sits with different parties depending on who the end client is. This is the single most misunderstood part of the off-payroll rules, because the answer flips the compliance burden onto a different party from the pre-2021 regime (where the contractor's own company self-assessed).

A private-sector client qualifies as "small" — and is exempt from the SDS duty — if it meets at least two of three Companies Act 2006 thresholds: turnover of no more than £15 million, a balance sheet total of no more than £7.5 million, and no more than 50 employees on average. These monetary thresholds were increased from £10.2 million and £5.1 million for financial years beginning on or after 6 April 2025 (the employee limit was unchanged), so a client that was "medium" the previous tax year can become "small" purely because the threshold moved, not because its own accounts changed. If your end client's size status changes, who determines your IR35 status changes with it — worth checking annually rather than assuming last year's answer still holds.

Either way, the CEST tool and this page's Step 1 checker only ever produce a view on status. The end client (or, for small clients, your own company) is the one making the formal determination, and HMRC can still challenge it after the fact regardless of who made the call.

Being "inside IR35" doesn't automatically mean payroll. There are three common ways an inside-IR35 engagement is actually paid, and they have different practical trade-offs even though the underlying tax treatment is broadly the same:

Deemed direct payment through your own Ltd. The fee-payer pays your limited company as usual, but must first deduct PAYE income tax and employee NI as if it were a "deemed employment payment" — this is the route modelled by the calculator above. Your company still exists and can hold other outside-IR35 income, but this particular contract's income can't be paid out as dividends.

Umbrella company. Instead of your own Ltd, an umbrella company employs you directly and invoices the agency/client. You become a genuine employee of the umbrella for tax purposes — no deemed payment calculation is needed because you're on real payroll. Umbrella fees (typically a fixed weekly/monthly amount) come off the top before your payslip is calculated; compare the two structures with the contractor comparison calculator.

Agency PAYE. The recruitment agency runs its own payroll and pays you as an employee, similarly to the umbrella route but without a separate umbrella fee — though day rates offered on agency PAYE are sometimes lower to begin with.

Whichever route, two employer-side deductions erode the headline day rate before you ever see it. Employer's National Insurance is currently 15% on the deemed salary above £5,000 a year — this comes out of the contract value, not on top of it, which is why the calculator above nets it off before income tax. The Apprenticeship Levy is a further 0.5% of total payroll for any employer with an annual payroll above £3,000,000 (after a £15,000 annual allowance) — this calculator doesn't model it directly because liability sits with the fee-payer's whole-company payroll, not a single engagement, but it's worth knowing it's one more reason the rate a client offers "inside IR35" is usually lower than the equivalent "outside IR35" rate for the same role.

Building an outside-IR35 case

If the working relationship genuinely supports outside-IR35 status, the strongest protection is evidence gathered before a dispute, not after:

• A written contract with an unfettered (not merely conditional) substitution clause, drafted to reflect what would actually happen in practice — a substitution clause that's never realistically usable carries little weight.
• Evidence you control how the work gets done: your own methodology, your own equipment where practical, and no fixed client-set hours beyond what the deliverable requires.
• A defined scope and deliverable rather than an open-ended "help out as needed" arrangement, so mutuality of obligation doesn't creep in.
• Business trappings: your own website/marketing, professional indemnity insurance, and — ideally — more than one client, even if not concurrently.
• A copy of the client's Status Determination Statement (or your own self-determination record if the client is small), kept on file in case HMRC opens an enquiry years later.

Compare how a limited company structure stacks up against sole-trader or employee alternatives with the limited company vs sole trader and employee vs self-employed tax calculators, and use the director salary vs dividend optimizer to fine-tune how you draw money out once you're confident the engagement is genuinely outside IR35.

If you're forced inside: the rate-negotiation maths

Sometimes status isn't up for negotiation — the client has issued an SDS and that's the engagement on offer. In that case the only lever left is the day rate. At a £600/day outside-IR35 benchmark, matching that same take-home inside IR35 (same 220-day year, same region) requires a day rate of roughly £721 — about £121 a day, or 20.2%, higher. That uplift is the number worth having in mind before accepting an inside-IR35 rate that's only marginally above the outside-IR35 offer for the same role; anything less and you're taking a real pay cut for the same work, not just a change in structure.

If Corporation Tax planning is part of your outside-IR35 strategy — for example running other client income through the same company — the Corporation Tax calculator shows how profit level affects the small profits rate, marginal relief, and main rate bands.