What Is Inside and Outside IR35?

With IR35 changes looming and the legislation changes dominating the world of contractors and businesses it is easy to get confused and weighed down by IR35 terminology. We’re taking it back to basics and discussing the difference between being

Inside IR35

If a contractor falls inside IR35 it means that, for tax purposes, they are considered an employee of the end client. They are deemed to have the same benefits and responsibilities as a full-time employee and are therefore subject to PAYE.

Under new IR35 legislation, if the contractor is inside IR35 then the fee-payer will be responsible for deducting the contractor’s tax and national insurance. However, many agencies and clients are not prepared to do this. This also adds more risk as the responsibility for assessing and determining IR35 status will fall on the end client/hirer. 

This is where Optimus Shield comes in…

If a contractor falls inside IR35 after our individual assessment of their contract, we will follow the below steps to mitigate all risk to the supply chain and ensure compliance.

Outside IR35

If a contractor falls outside of IR35 it essentially means that they are operating as a genuine business and are not seen as ‘disguised employees’.

With upcoming IR35 changes the end client is responsible for determining the IR35 status of a contract. However, once deemed outside IR35 contractors will be paid as normal and will be responsible for managing their own taxes and NI payments. 

Optimus Shield will individually assess all contracts, and, if a contract is deemed outside of IR35 we will issue SDS reasons and provide insurance documents to the entire supply chain. We can also act as a “fee payer” if the contract is outside IR35.

How do I know if a contract is inside or outside IR35?

When it comes to determining the status of a contract, it is critical that businesses use an IR35 status determination service that mitigates all risk to the supply chain and provides insurance backed determinations.

A HMRC investigation can prove incredibly costly and time-consuming for contractors, businesses and end clients. Having an insurance backed service that offers compliance and protection to the entire supply chain will therefore reassure contractors and help businesses to retain the top talent.

We hope this brief explanation has helped to clarify the difference between inside IR35 and outside IR35. If you would like further information, please don’t hesitate to contact us.


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Optimus Shield is the result of heavily invested research and development to tackle the issues now facing the private sector due to changes to the IR35 legislation being rolled out in April 2021.