How IR35 Affects Your Income

Outside IR35: You operate through your limited company, paying yourself a small salary (£12,570) and taking the rest as dividends. Corporation tax is 19-25%, but dividend tax rates (8.75%–33.75%) are lower than income tax, and you avoid NI on dividends entirely.

Inside IR35: You're treated like an employee for tax. Your income is subject to PAYE income tax and both employee and employer NI. You can claim a 5% flat-rate expense deduction but lose most other expense claims.

Who determines IR35 status?

For private sector clients, the end client (or agency) determines your IR35 status. For public sector, it's always the public body. You can challenge an incorrect determination but the onus is on the fee-payer to get it right.

What's the 5% IR35 expense deduction?

If caught by IR35, you can deduct 5% of your gross income as a flat-rate expense before calculating deemed employment income. This is meant to cover the cost of running your company but is less generous than actual expense claims outside IR35.