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What is the IR35 rule for freelancers in the UK?

Last Updated
Wednesday, February 1, 2023
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What is the IR35 rule? 


The IR35 legislation, enacted in 2000 by Her Majesty’s Revenue and Customs (HMRC), targets UK tax measures aimed at combating disguised employment. This legislation addresses individuals working like employees but through their own companies, potentially leading to reduced tax payments. Significant reforms were introduced in the public sector in 2017 and expanded to the private sector in April 2021 (initially scheduled for 2020 but postponed due to the COVID-19 pandemic). The IR35 is a British law, therefore, it only affects self-employed workers (freelancers) and companies in the United Kingdom, as well as the taxes and duties arising from their activities.

IR35 seeks to identify workers who, while formally registered as ‘self-employed’ or ‘contractors’, effectively operate as employees, thus avoiding the corresponding income tax and National Insurance Contributions (NICs). The legislation was a response to a trend where workers would leave permanent employment only to return to similar roles as contractors soon after, benefiting from lower taxes and other financial advantages not intended for genuine freelancers.


2024 updates on IR35

The discussion around IR35 remains dynamic in 2024, influenced by political perspectives ahead of the upcoming General Election. Some political figures have suggested plans to revise or dismantle the current IR35 structure, criticising its complexity and the burden it places on freelancers and contractors.

Recent developments in addressing IR35 issues

Double Taxation Adjustments

HMRC has recognised issues such as double taxation, where contractors face paying both employee and employer NICs without adequate offsets for taxes already paid. Recent developments indicate potential adjustments that would allow contractors to offset these contributions against any fines or penalties for incorrect status determination.

CEST 2.0 Improvements

Enhancements to HMRC’s Check Employment Status for Tax (CEST) tool are designed to improve the accuracy of employment status determinations, aiding both end-hirers and contractors in making better-informed decisions.

Why was the IR35 reformed, starting April 2021?

In order to understand the magnitude of this reform, it must be kept in mind that it marks a major shift in decades for how contractors are taxed in the United Kingdom.

Before this body of legislation, borders were blurred and jobs were sometimes categorised differently from what they were in reality. The legislation has, therefore, evolved over time in order to adapt to realities.

At first, the government noticed that the daily rates for contractors had increased considerably. They then concluded that the British had decided, in numbers, to leave their employee status in order to become “entrepreneurs” of public limited companies. In reality, they continued to perform the same roles and functions with their company under the status of contractor, with the aim to benefit from lower tax rates and tax advantages.

Clearly, these laws were mainly intended for entrepreneurs working through this status; when in reality, these individuals should have had the status of employee for the company they worked for. This difference, therefore, implied tax relief.

According to the British government, some grey areas in this regard have resulted in abuse and a tax loss of several billion pounds each year.



Does the IR35 apply to my situation?


It’s up to freelancers and contractors to make sure they fall into the right category and pay the taxes that apply to their line of work. Here is additional information to help you understand which category you may fall into.

How do you determine your profile and status: employee vs contractor ?

In some cases, the boundaries can be blurry and an independent contractor can ask the question: how do I situate myself in relation to the IR35 rule? Am I in good standing?

A simple way to summarise the situation is to ask yourself: am I employed by my company (with the status and benefits that go with it, with taxes and duties being withheld at the source)? Or, do I work for the client – or even an intermediary service company – with the appropriate contract (I declare my income myself and pay the appropriate taxes)?

It is therefore necessary to distinguish between an “employee” (an employee with a work contract, aka a “permanent contract”) and a “contractor” (“self-employed”). The “contractor” is an independent person who works for their client for a defined period of time and on one or more specific projects. As a general rule, these “contractors,” chosen for their skills and knowledge, have a service contract stipulating the nature of their assignment.

I am a freelancer in the UK, am I impacted ?

Two scenarios arise for freelancers in the United Kingdom:

To be “inside” the IR35 rule: i.e. to be considered by the HMRC as a sole employee of a company (full-time). In this case, you have more than a chance of being considered inside the rule and therefore have to move towards a PAYE (Pay As You Earn) tax model. You pay taxes in the same way a permanent employee would pay and it is your employer who takes care of everything.

To be “outside” of the IR35 rule: means to be working legitimately as an entrepreneur or freelancer in England and being paid by your client directly. In this case, you have the responsibility to make sure that you pay the correct amount of tax on the money you collect for your work. You are not subject to the PAYE payslip regime. Check our article Inside IR35 vs. Outside IR35: Meaning, Calculator, and Updates to have a deeper understanding of the two scenarios.

Do you have any doubts about your situation? Please do not hesitate to contact us so that we can provide you with a personalised response.


How to become a freelance in the United Kingdom and get support?


When you’ve decided to take the plunge and start freelancing in the UK, you need to start with the mandatory legal steps. Let’s look at this in greater detail.

How do you become a freelancer in the UK ? The procedures

The first step, when you want to work in the UK, whether fully employed or freelancing, is to obtain your National Insurance Number (NIN). The first contact is by phone: an agent will ask you a few questions (you can find the phone number directly on the official website) and then provide you with an appointment date in order to obtain your NIN.

Once obtained, you will need to register with HMRC and declare your “self-employment” activity.

You will then have to provide some information: name and surname, date of birth, telephone number, postal address, start date of your work, the sector, your NIN, and finally if you are starting the work alone or with a partner. You can find the complete procedure on the official website:

It is advisable to do this, at the latest, after you find your first customer (who may ask for your Unique Taxpayer Reference (UTR) number). The important thing to do is to have validated your registration file before the end of the first year of your work.

What are the available supports ?

In order to facilitate the procedures with their clients, the freelancer can also be accompanied by an umbrella company. You then become employed by the umbrella company, while also retaining your freedom as a self-employed person.

Through this, it is then possible to benefit from all the advantages of self-employment, but without the administrative or legal constraints! The umbrella company takes care of everything and pays you via payslips (the PAYE system); you just have to focus on your assignment. This model is especially ideal for foreigners and expatriates since the umbrella company takes care of all the local legislation and administration.

As an alternative to the umbrella companies in England, Hightekers has the advantage of partnering with many Europeans looking to work in the UK. It is a genuine network available to you, as well as provides tax security. However, these are not the only advantages: a secure environment, associate status, international opportunities, contract and invoice management, high-end services available (company car, mutual insurance company, etc.) , and so many others.

There’s no need to worry about the contractual part with the customer or even negotiate an hourly rate. It’s a savings of time and energy, as well as a genuine international freedom as a freelancer in England.

What does inside IR35 mean?

Being inside IR35 means that you are providing a service deemed employment (and not self-employment) by HMRC (Her Majesty’s Revenue and Customs). This means that you are subject to an employee taxation rate (versus potentially heavier taxes if you are declared self-employed).

What is expected of you when working inside IR35?

Can I work inside IR35 through a limited company?

Yes. However, you will need to ensure that you pay the right PAYE tax and National Insurance for contracts which are inside IR35.

Do I get paid sick days inside IR35?

Inside IR35 is just a tax determination. Having access to holidays or statutory sick days, for example, is tied to worker’s rights. If you partner with Hightekers, you will be able to enjoy these rights. However, you won’t if you work through a limited company.

How much should I increase my daily rate inside IR35?

If your next contract is deemed to be inside IR35, you will have to increase your daily rate to ensure that your take home pay is not reduced. Need a personalised take home pay simulation? Contact us!

Is Hightekers inside IR35?

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