Outside IR35 vs Inside IR35

One of the most common questions contractors ask is:

"What's the difference between an outside IR35 role and an inside IR35 role?"

In simple terms:

  • Outside IR35 means you're considered to be providing services as an independent business.
  • Inside IR35 means the engagement is treated as employment for tax purposes.

The distinction can have a significant impact on how you're paid and how much you take home.

If you're new to contracting, read What is Outside IR35? first.

At a glance

Outside IR35 Inside IR35
Treated as an independent contractor Treated as employment for tax purposes
Usually work through your own limited company PAYE tax and National Insurance generally apply
Typically higher take-home pay Usually lower take-home pay for the same day rate
Greater flexibility over how you operate your company Less flexibility in how income is paid

Tax differences

The biggest practical difference is taxation.

In an outside IR35 role, contractors typically invoice the client through their limited company and manage their company finances in the usual way.

In an inside IR35 role, income is generally subject to PAYE income tax and National Insurance before it reaches you.

Exactly how this works depends on the engagement and your circumstances, so professional advice is always recommended.

Not sure whether a contract is genuinely outside IR35? Read How to Tell if a Role is Really Outside IR35.

Day rates

Because inside IR35 roles usually result in a higher tax burden, contractors often expect a higher day rate to compensate.

For example, an outside IR35 role paying £600/day is not necessarily equivalent to an inside IR35 role paying £600/day.

When comparing opportunities, it's important to consider your estimated take-home pay rather than the headline day rate alone.

Flexibility

Outside IR35 roles generally offer greater freedom to operate as an independent business.

Inside IR35 engagements are closer to employment from a tax perspective, even though they don't usually provide the employment benefits that permanent employees receive.

Which is better?

Many contractors actively seek outside IR35 roles because they generally offer:

  • Better take-home pay
  • More control over how they operate their business
  • A clearer independent contractor relationship

That said, an inside IR35 role may still be worthwhile if:

  • The day rate is high enough
  • The project is particularly interesting
  • It fills a gap between roles
  • It offers experience or industry exposure that's valuable to your career

Ultimately, the best choice depends on the overall package rather than the IR35 status alone.

If you're looking for genuine outside IR35 opportunities, see How to Find Outside IR35 Jobs.

Frequently asked questions

Can a role change from outside to inside IR35?

Yes.

The IR35 status of an engagement can change if the working arrangements change significantly. If this happens, the IR35 determination may need to be reviewed.

Are remote roles always outside IR35?

No.

Whether a role is remote, hybrid or office-based has no direct bearing on its IR35 status.

Should I only apply for outside IR35 roles?

Many experienced contractors prefer them, but the right choice depends on your financial goals, availability and the specific opportunity.

More questions?

See our Outside IR35 FAQ for answers to the most common questions contractors ask.