What is IR35? UK Definition 2026/27
Quick Answer
Tax rules determining if contractors are genuinely self-employed or 'disguised employees'.
Definition of IR35
IR35 (Intermediaries Legislation) aims to ensure people working like employees pay similar tax, even if working through a limited company. If a contract is 'inside IR35', the contractor is taxed like an employee. Since April 2021, medium and large private sector clients determine IR35 status (Off-Payroll Working rules).
IR35 — Key Facts for 2026/27
| Inside IR35 | Taxed as employee |
| Outside IR35 | Full contractor benefits |
| Status determination | Client's responsibility |
| Key factors | Control, substitution, MOO |
How IR35 Works — Example
- 1Day rate: £500
- 2Outside IR35 (Ltd): ~£380 take home
- 3Inside IR35 (umbrella): ~£290 take home
- 4Difference: ~£90/day or £23,400/year
How IR35 Affects Your Tax
IR35 status significantly affects contractor earnings. Being outside IR35 allows tax-efficient salary/dividend extraction through your limited company. Inside IR35 means PAYE deductions, losing most contractor benefits.
Official HMRC Guidance on IR35
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Understanding IR35Frequently Asked Questions about IR35
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.