What is IR35? 

IR35 is a tax rule created by HMRC. It works out whether a freelancer working through an intermediary, such as their limited company or an agency, is actually self‑employed or, in practice, working as an employee.

The aim is simple: to make sure the right amount of tax is paid – by both the freelancer and the organisation hiring them.

If HMRC decides that a freelancer is effectively operating as an employee, then both parties will pay tax in the same way as they would for a permanent employee on the payroll.

To put this in practical terms:

• Inside IR35: the company hiring you deducts PAYE and National Insurance before paying you.
• Outside IR35: you’re paid the full amount (gross) without tax deductions at source.

To determine your status, HMRC looks at several factors:

Key tests HMRC considers

• Control
  Who decides how the work is done?
  If the company directs most of your day‑to‑day work, that can indicate being inside IR35.
• Mutuality of obligations
  As a genuine freelancer, you choose which work you take on.
  If the company expects you to accept ongoing work – and you’re obliged to do so – this may point to being inside IR35.
• Substitution
  In an ideal freelance setup, you could send another suitably skilled person to complete the work.
  If that’s not possible, HMRC may see it as an employee‑like relationship.
• Insurance and financial risk
  Freelancers usually carry their own public liability or professional indemnity insurance.
  Not having this could suggest you’re working more like an employee.

This list isn’t exhaustive – HMRC may consider other factors when assessing your status.

What changes came into place in 2021? 

Before April 2021, freelancers in the private sector had to decide their own IR35 status. Now the responsibility depends on the size of the organisation hiring you:

• Medium and large private sector companies, and all public sector organisations, must decide if IR35 applies.
• Small private sector companies are exempt – meaning you must decide if IR35 applies

To be classed as a medium or large company, an organisation must meet at least two of the following (updated April 2025 for contracts from 2026):

• Annual turnover above £15 million (up from £10.2 million)
• Balance sheet total above £7.5 million (up from £5.1 million)
• More than 50 employees

If a company meets two or more, they are responsible for the IR35 decision.
If they meet fewer, you are.

What IR35 means in practice

There can be financial consequences if HMRC later finds your IR35 status was incorrect.
Recent changes help reduce the risk of paying tax twice – for example, through tax offset mechanisms – but it’s still important to protect yourself.

A few ways to do that:

• Keep a written contract for every project.
• Note how the IR35 determination was made.
• Get guidance from an accountant who understands IR35 and freelance tax.

Supporting your wellbeing 

IR35 can feel complicated, and it’s completely normal to find it overwhelming. You don’t need to work it out alone.

You can support yourself by:

Learning the basics:

There are helpful starter guides available such as:

Understanding Off-Payroll Working on the Gov.uk website.

Crunch guide to IR35 changes in 2025

Getting professional support
The NABS Advice Line can share accountant contacts or suggestions, or your network may also be a useful source of recommendations.

Recognising the emotional load
It’s okay not to have all the answers! You can always reach out for practical, financial, or emotional support.

Starting with one small step
If you’re unsure where to begin, our Advisors at the NABS Advice Line are happy to talk things through.

Please note: NABS isn’t responsible for the accuracy or reliability of external websites

IR35 Quick Checklist

Use this as a snapshot to understand what your status might be:

1. Control
   Do you decide how, when, and where you work?
   If the client controls this, you may be inside IR35.
2. Mutuality of obligations
   Can you accept or turn down work?
   If you’re expected to accept ongoing work, that suggests being inside IR35.
3. Substitution
   Can you send someone equally skilled to do the work?
   If not, you may be inside IR35.
4. Financial risk and equipment
   Do you provide your own tools or carry insurance?
   If the client covers everything, you may be operating more like an employee.
5. Contract length and exclusivity
   Long‑term work with one client, with fixed hours, can indicate being inside IR35.
6. Client size
   If the client meets two of the medium/large thresholds, they make the determination.
   If not, it’s down to you.
7. Documentation
   Keep clear contracts and written agreements as evidence for HMRC if needed.

Making Tax Digital

‘ Making Tax Digital’ is HMRC’s new, more streamlined way for self‑employed people to keep on top of their tax. Instead of wrestling with one big annual return, you’ll record your income and expenses digitally and send simpler quarterly updates. It begins rolling out from April 2026 for those earning over £50,000 from self‑employment, with more people included in later phases. The aim is to make tax feel more manageable throughout the year, reduce mistakes, and give you a clearer picture of what you owe – helping you stay in control and avoid last‑minute stress.

Read ‘Making Tax Digital for Income Tax’ on the Gov.uk website.