Inside or outside IR35: what's the difference?

Two adverts, side by side

The easiest way to see the difference is to look at two roles you might come across.

Same kind of creative work, very different set-ups. The first sounds like a job. The second sounds like a business doing a project for a client.

What "inside IR35" means

A role is labelled inside IR35 when the client thinks the way you'll work is close to being an employee: set hours, a manager telling you how and when, and being part of their team.

In practice, that usually means tax and National Insurance are taken off before the money reaches you. You'd normally be paid through the client's or agency's payroll, or through an umbrella company.

The upside is that your tax is largely sorted as you go. The trade-off is that you're paid less up front and have less freedom over how you work.

What "outside IR35" means

A role is labelled outside IR35 when the client is happy that you're genuinely working for yourself: you've agreed what needs delivering, and how you get there is up to you.

You're paid the full amount on your invoice, with no tax taken off. That money is yours to manage, which means putting some aside and paying your tax through Self Assessment.

Reading between the lines

Job adverts and contracts often give the game away before you even see the label.

None of these settles it on its own. It's the overall picture, and how things work day to day, that counts.

I'm a sole trader. Do these labels apply to me?

Strictly speaking, no. IR35 is about people who work through their own limited company or another go-between. Our guide IR35: do sole traders need to worry? explains why.

But the idea behind the labels still matters to you. Before taking you on, a client still has to be happy that you're genuinely self-employed, and they ask very similar questions.

So if a role looks a lot like the "inside" advert above, don't be surprised if:

• the client wants to put you on their payroll instead of paying your invoices
• an agency asks you to work through an umbrella company
• some agencies won't take sole traders for that kind of role at all

None of that means you've done anything wrong. It just means that particular job is being treated like employment.

Working through an agency?

If an agency finds you the work and pays you, there's a slightly different test. The question is whether anyone, usually the end client, supervises, directs or controls how you do the work.

If they do, the agency will normally take tax and National Insurance off through PAYE, even if you're self-employed for the rest of your work.

Is one better than the other?

Not really. They just suit different jobs.

Plenty of people, especially in film and TV, have both in the same year. One production pays you through payroll, the next pays your invoice. You just report it all on your tax return.

If most of your work is paid in full, our guide How much should I put aside for tax? will help you avoid a nasty surprise.

If you work through your own limited company

If you provide your services through your own company, the inside or outside label matters a lot more, because it changes how much tax is taken off and who is responsible for it. Our fuller guide IR35: does it apply to you? covers that in more detail.

This guide provides general information based on UK tax rules as at October 2026. Employment status depends on individual contracts and working arrangements, so specific circumstances may require professional advice.