What is IR35?
IR35 (officially called the off-payroll working rules) is HMRC legislation designed to combat tax avoidance by workers who supply services through their own limited company but who would otherwise be considered employees. If HMRC determines that your working arrangement is equivalent to employment, you pay Income Tax and National Insurance as if you were employed — losing the tax advantages of operating through a limited company.
Who Does IR35 Apply To?
IR35 applies to contractors who supply services through an intermediary (usually a limited company or partnership) to a client. It affects IT contractors, management consultants, engineers, healthcare locums, financial contractors and many other professionals operating through their own limited company in Glasgow and across Scotland.
Inside vs Outside IR35 — What's the Difference?
Inside IR35
- Treated as a disguised employee
- Pay Income Tax and NI as if employed
- Lose limited company tax advantages
- Cannot pay yourself in dividends tax-efficiently
- Significantly higher tax bill
Outside IR35
- Genuinely self-employed contractor
- Pay Corporation Tax (25% or 19%)
- Salary and dividend structure preserved
- All limited company benefits retained
- Significantly lower tax bill
How Does HMRC Test IR35 Status?
HMRC assesses IR35 status using three main tests:
1. Substitution
Can you send a substitute to do your work? If the client requires you personally and would not accept a substitute, this points to employment. Genuine substitution rights — where you can send someone else in your place — strongly support outside IR35.
2. Mutuality of Obligation (MOO)
Is the client obliged to offer you work and are you obliged to accept it? An employment-like relationship where the client always provides work and you always accept it supports inside IR35. A genuine contract for specific deliverables supports outside IR35.
3. Control
Does the client control how, when and where you work? High levels of client control — fixed hours, specific location, detailed instructions on methods — suggest employment. Autonomy over how you deliver results supports outside IR35.
Who Decides IR35 Status?
Since April 2021, medium and large private sector clients are responsible for determining the IR35 status of contractors they engage. Small companies (below the Companies Act definition of small) still allow the contractor's own company to determine status. Public sector clients have been responsible for status determination since April 2017.
How to Strengthen Your Outside IR35 Position
- Ensure your contract reflects genuine self-employment — substitution rights, no MOO, control over methods
- Operate your business genuinely — maintain your own equipment, have multiple clients, carry business risk
- Have your contracts professionally reviewed before signing
- Keep a working practices log showing how you work in practice
- Obtain professional indemnity and public liability insurance
- Use a business bank account and invoice formally
📄 Get Your IR35 Status Reviewed
We review Glasgow contractor contracts and working practices and provide written IR35 status advice. We also manage all limited company accounting for outside-IR35 contractors. Free initial consultation.
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