Inside IR35: what the determination changes, and what you keep

Working inside IR35: what changes the day it applies

1. A deemed employer appears in the chain. GOV.UK is explicit: where the worker is deemed employed for tax purposes, the deemed employer deducts Income Tax and employee National Insurance from the fees paid to the worker's intermediary, and pays employer National Insurance and the Apprenticeship Levy where applicable. That party is usually the agency or the client paying your company.
2. Your student loan does not come out of it. Deemed employers do not deduct student or postgraduate loan repayments from an off-payroll worker's fees, and GOV.UK says the worker must register for Self Assessment and report and pay those repayments themselves. Budget for it: on a graduate rate it is a real slice arriving as a bill rather than a deduction.
3. The rate has to absorb the employer costs. Employer National Insurance and the levy are the deemed employer's liability, and in practice rates for inside engagements are set with that cost in view, which is why an inside day rate quoted to you is usually lower than the outside rate for the same work. Ask whether the rate quoted is the assignment rate or your gross.
4. You get the tax treatment without the employment rights. An inside determination is a tax decision. It does not create holiday pay, sick pay, notice or redundancy rights, and it does not enrol you in the client's pension. Where you work through an umbrella you get statutory employment rights from the umbrella, which is a different thing from being the client's employee.
5. Your company still has its own filing to do. Fees that arrive net of deemed-employment deductions are still your company's income, and the tax already accounted for is set against what the company and you owe. This is the part where an accountant earns their fee, and it is why an inside engagement is not simply a payslip with extra steps.

Common questions

What does inside IR35 mean for my take-home?

Income Tax and employee National Insurance come out before your intermediary is paid, so the money reaching you is close to employment net pay on the same figure, less the student loan you will pay separately through Self Assessment and less any umbrella margin if that is the route.

Can I work through an inside IR35 limited company?

Yes. The deemed employer deducts tax and National Insurance from the fees paid to the company, and the company accounts for what is left. Many contractors move to an umbrella instead because the administration is simpler, not because the company is forbidden.

Should I ask for a higher rate on an inside IR35 contract?

It is the rational response, because employer National Insurance and the levy sit on that engagement and because the employment rights an employee would get do not come with it. Whether the client will pay it is a market question rather than a tax one.

Do I get holiday pay inside IR35?

Not from the client by virtue of the determination. Through an umbrella you are the umbrella's employee and get statutory holiday, usually funded from the assignment rate. Through your own company you get nothing of the kind, which is why the rate comparison matters.

Take-home pay by jurisdiction

• Take-home pay in United Kingdom