The Contractor's Guide to IR35 in 2025

Hey, contractors! Grab your favourite caffeinated beverage, sit back, and let’s dive into one of the most talked-about topics in your world: IR35.

 

So, what Is IR35 Anyway?

 

You know how we all like to pretend we’re our own boss, with the freedom to work from anywhere, at any time, in our pyjamas if we like? IR35 is that pesky rule the UK government brought in to check if we actually are, or if we're secretly employees in disguise, dodging the taxman like a ninja.

IR35 is a piece of tax legislation introduced in 2000 to crack down on “disguised employees”—that’s contractors who are technically self-employed but act like full-time employees. The aim is to prevent contractors from enjoying tax breaks that come with being self-employed while working as though they’re full-time staff.

 

But Why Should You Care?

 

Because if you get caught out by IR35, you could end up paying way more tax than you planned (yes, the worst nightmare of every freelancer). If HMRC decides you’re “inside” IR35, you’ll be taxed like an employee—no more of those sweet tax-deductible expenses, and bye-bye to your lower National Insurance contributions.

Being inside IR35 means your contract is more like an employment contract, even though you might still invoice through your limited company. If you’re outside IR35, congratulations! You’re a bona fide self-employed contractor and can carry on reaping the benefits of your freedom.

 

How Do I Know If I’m Inside or Outside IR35?

 

Ah, the million-pound question (okay, maybe not that much, but still important). The key to IR35 status lies in how much control you have over your work. HMRC looks at several things to determine whether you’re inside or outside:

• Control – Can the client tell you how to do your work, when to do it, or even where to do it? If yes, you're veering dangerously close to employee-land.
• Substitution – Are you allowed to send someone else to do the work on your behalf if you're unavailable, or does the client only want you? If substitution is allowed, you’re looking good to be outside IR35.
• Mutuality of Obligation (MOO) – Is the client obligated to offer you work, and are you obligated to accept it? If the relationship feels like a permanent job, HMRC might decide it is a permanent job.

 

The 2021 Shake-Up: What’s Changed?

 

Before April 2021, contractors working for the private sector decided on their own IR35 status. Yep, it was like setting your own homework—great if you want to be in charge, but ripe for mistakes (or cheeky manoeuvring). HMRC didn’t love that.

Post-2021, the game changed. Now, for medium and large companies, the responsibility for determining your IR35 status lies with your client—they now decide if you’re inside or outside IR35. If they get it wrong, the onus is on them to deal with HMRC. This is different for small companies (defined by having two or more of the following: a turnover of £10.2m or less, £5.1m or less on their balance sheet, and fewer than 50 employees). For these, you can still set your own IR35 status.

More details can be found on the government website.

 

What Happens If You’re Inside IR35?

 

So, you’ve been deemed inside IR35. What now?

You’ll have to pay income tax and National Insurance just like an employee, but here’s the kicker—you don’t get the benefits of being an employee. There’s no holiday pay, no sick leave, no pension, no free coffee at the office. You get all the costs of being employed with none of the perks. Ouch, right?

If you’re caught inside IR35, your client might deduct tax at source via the PAYE system, which means less admin for you but also less take-home pay.

 

How Do I Stay Outside IR35?

 

This is the golden question. It’s all about making sure your working practices match your self-employed status. Here’s how you can protect yourself:

• Write Clear Contracts: Make sure your contracts reflect the fact you’re an independent contractor. No promises of guaranteed work, and allow for the possibility of substitution.
• Work for More Than One Client: This shows you’re running a legitimate business, not just acting like a full-time employee for a single company.
• Demonstrate Control: Prove that you control how and when you work. If you can show you’re not just doing a 9-to-5 for one client, you’ll have a better shot at staying outside IR35.

 

The IR35 Safe Zone

 

Feeling the pressure? Don’t sweat it! IR35 might sound like a massive headache, but you’ve got this. If you follow the rules, you can stay safely in the land of lower taxes and freedom-filled contracts.

And if you’re ever in doubt, chat with an accountant or tax adviser. They’ll help you make sure your business stays legit, and you avoid a nasty letter from HMRC. No one wants to be "that contractor" who’s suddenly on the taxman’s radar.

 

 

Using SPG Resourcing for IR35

 

IR35 can feel like the villain in your contractor story, but understanding it is your best defence. Whether you're inside or outside IR35 can make a big difference to your tax bill and your financial freedom.

SPG Resourcing have partnered with Kingsbridge Contractor Insurance to provide an award winning 360 IR35 solution that manages the entire process, from status assessment to process consultation, so you can confidently and compliantly maintain your flexible workforce outside IR35. Need help? Get in touch!