Inside and outside IR35: What you need to know

Blogs 8 Oct 2020

IR35 rules have changed. Learn what being inside IR35 or outside IR35 will mean for your contracts going forward.

This content was last updated 6 April 2021.

With new IR35 rules in the private sector now in place, it’s important to understand what implications this might have on your contracts and tax bills.

The responsibility for determining your status in the private sector is now with your client, if they are eligible. If you believe you are outside IR35, you’ll need to ensure your freelance contract and working practices clearly demonstrate your relationship as a contractor.

What’s the difference between inside IR35 and outside IR35?

Your status impacts the employment taxes you will pay.

Inside IR35
  • You pay the same tax and National Insurance as you would if you were an employee. 
  • You are only an employee for tax purposes, you have no employment rights.
  • Your client will be required to pay the necessary tax and NIC, which includes Employers’ NIC and the apprenticeship Levy where applicable.
Outside IR35
  • Nothing changes. You are paid a flat fee as normal and are responsible for managing your own taxes.

How and who pays the appropriate taxes largely depends upon a number of key factors: control over how the work is done, whether your personal service is required and mutuality of obligation. However, how you are set up in business can also be an influencing factor. You can learn more about these and the actions you can take in our guide to getting ready for IR35.

Not sure whether your contract is inside or outside?

You can check your employment status for tax using this tool from HMRC

Having a tax specialist review your contract can give you peace of mind. FSB members have access to a contract review service, for an additional fixed fee.

My last contract was outside IR35, but this one is inside?

IR35 applies on a contract by contract basis, so your status may differ depending on the contract agreed. To remain compliant, you’ll want to brush up on your understanding of the new rules in the private sector. Our IR35 FAQ walks you through everything you need to know about the changes.

If you don’t agree with your client’s decision about your employment status, FSB’s tax specialists will be able to guide you through the process of challenging the decision. The legislation gives you the right to submit a written challenge to the Status Determination Statement and requires the end client to respond within 45 days to further explain their reasoning.

Got more questions?

Signing contracts is part of everyday life as a freelancer, but that doesn’t mean it should be stressful. Make more time for your next project with contract templates, IR35 support and dedicated tax and VAT helpline.

Wave goodbye to tax enquiry worries

FSB Tax Investigation Protection provides comprehensive support and tax investigation insurance for most business-related HMRC enquiries, all at no extra cost. We’re on your side.

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