Let’s talk about IR35. Yes, we know—it’s not the most exciting topic, but if you’re thinking about contracting or already working as a contractor, this stuff really matters. And honestly? It’s not as complicated as everyone makes it sound.
So, What Actually IS IR35?
Think of IR35 (officially called “Intermediaries Legislation”—catchy, right?) as HMRC’s way of making sure people who are essentially employees aren’t dodging tax by calling themselves contractors. The basic question it asks is: are you running a genuine business, or are you just an employee with extra steps?
The rules got a major shake-up in April 2021, and the contracting world hasn’t been quite the same since.
Inside or Outside? Here’s What It Means for Your Wallet
This is where it gets real. Your IR35 status directly impacts your take-home pay, and both scenarios have their own considerations.
If you’re inside IR35, you’re taxed like an employee:
- PAYE deductions come straight out—simple and straightforward
- Limited business expense claims
- No dividend tax benefits
- But you might negotiate higher day rates to compensate
- Less administrative burden with simpler tax arrangements
If you’re outside IR35, you operate as a genuine business:
- You can claim genuine business expenses (hello, mileage claims!)
- You can pay yourself through dividends and potentially save on tax
- Greater financial flexibility and control
- More administrative responsibility and accounting costs
- Need to maintain clear business practices and contracts
The financial difference can be significant—we’re talking hundreds or even thousands of pounds each month. But it’s not just about the money; it’s also about what works for your working style and career goals.
The Three Tests That Decide Your Fate
HMRC looks at three main things to work out your IR35 status. Let’s break them down in plain English:
1. Can You Send Someone Else to Do the Job?
This is about substitution. If you could theoretically send a qualified substitute to do your work (and the client would be cool with that), you’re looking more like a genuine business. If the client specifically needs you and only you? That’s employee territory.
2. Is There an Ongoing Obligation?
This one’s about whether there’s a “see you next week” vibe. Outside IR35 means when this project ends, nobody owes anyone anything—no obligation to offer more work, no obligation to accept it. If there’s an expectation of ongoing work? That leans towards employment.
3. Who’s Really in Control?
Be honest—who decides how, when, and where you work? If you’re calling the shots on your methods and schedule, great. If the client’s telling you to be at their office 9-5 and micromanaging your approach? That’s looking a lot like employment.
What This Means If You’re Job Hunting
Here’s the thing: IR35 has completely reshaped the playing field, and it affects you whether you’re looking for contract work or permanent roles.
Thinking about contracting? The landscape’s trickier now. Many contractors have increased their day rates—we’re seeing jumps of £40+ per day just to offset the loss of expense claims and dividend advantages. You need to do the maths carefully. Is contracting still worth it for you if you’re caught inside IR35?
Prefer the permanent route? Actually, there’s good news here. The contractor pool has shrunk, which means more companies are hiring permanent staff to fill the gaps. Competition’s stiffer, sure, but opportunities are definitely out there.
The Recruiter Reality Check
We’ve seen the contractor market shrink—talented people who used to love the flexibility have moved to permanent roles or just left contracting altogether. It’s frustrating because businesses still need that agile talent, but the pool’s getting smaller.
The opportunities are still there for people who understand the rules and adapt accordingly. Whether you go permanent or contract, the key is making an informed choice based on your situation, not just what worked five years ago.
Three Ways IR35 Is Shaking Things Up
Based on what we’re seeing in the market:
- Costs are climbing – Unexpected rate rises and companies suddenly having to cover expenses they didn’t before
- Quality vs. cost dilemmas – Companies want top talent but are squeezed by higher costs
- Contractor shortages – Fewer people want to contract under these rules
How to Navigate This Mess
If you’re considering contracting:
- Understand your likely IR35 status before taking a role
- Calculate whether the rate truly compensates for inside IR35 status
- Get specialist advice on your contract structure—it’s worth it
- Ask yourself honestly: does contracting still achieve what I want from my career?
If you’re job hunting generally:
- Weigh up permanent vs. contracting carefully—the old rules don’t apply anymore
- Research market rates for both options in your field
- Look for roles with clearly defined project scopes and deliverables
- Consider developing specialist expertise that positions you as a genuine business service provider
- Stay informed—IR35 is still evolving
And here’s a pro tip from us: Use HMRC’s CEST tool to check your status, but don’t rely on it alone. Get proper advice. Seriously.
IR35 is Still Evolving:
The introduction of Joint and Several Liability (JSL) for unpaid taxes in the umbrella company supply chain will significantly impact contractors. This new legislation will require recruitment agencies to be liable for any tax owed by their umbrella companies but unpaid. This means that if an umbrella company fails to pay the tax, the recruitment agency and the end client will be held jointly and severally liable for the tax shortfall. This shift in liability means that contractors will need to be more vigilant about their IR35 status.
Ready to Make Your Next Move?
At PM3 Recruitment, we understand the complexities of today’s contracting landscape. Contracting continues to offer valuable opportunities; the landscape has simply evolved.
Whether you’re considering your first contract role, weighing up permanent vs. contracting options, or navigating IR35 questions, we’re here to help you make informed decisions about your career.
Let us help you find the right role that matches your skills, goals, and circumstances.
Get in touch with our team to discuss your options and find out what’s available in your field.