How outside IR35 appeals, and what outside IR35 looks like in practice

As Spring Statement 2025 fast-approaches on March 26th, there’s one key difference this year compared to all the Spring and Autumn Statements I can remember—and that’s the notable absence of voices calling for IR35, or the off-payroll working rules, to go.

With this tacit acceptance that IR35 and the OPW rules aren’t going anywhere, here's a timely outline for users of Free-Work (and others who executive temporary roles via their own limited company) how ‘outside IR35’ appeals and what ‘outside IR35’ looks like, writes Charlie Hemsworth, director of Bauer & Cottrell.

Outside IR35? It’s not just a financial, tax or monetary issue

The truth is that for contractors in IT and other key sectors, working outside IR35 isn’t just about avoiding higher tax bills.

It’s also about getting to maintain your independence and the ability to run your incorporated business on your own terms.

Inside IR35: The (unappealing) flip-side

If you’re inside IR35, you’re taxed as an employee, which means you lose the tax benefits of operating through a limited company (even while you operate through that limited company).

At the same time, despite paying employed levels of tax, inside IR35 means you also miss out on employment rights such as sick pay and holiday pay.

Beware the dreaded deemed employment payment

Outside IR35 contractors get to keep more of their hard-earned income by paying themselves through a combination of salary and dividends, sidestepping higher National Insurance contributions and avoiding the dreaded "deemed employment payment" under IR35.

The deemed payment can add up to thousands of pounds each year -- money that could be spent growing your IT business, upskilling in new tech skills, or saving money for the future.

Unbeatable autonomy? You must be outside IR35

But as I said at the top, it’s not just the money that matters!

Operating outside IR35 validates true business-to-business relationships, giving contractors the freedom to choose clients, work on their own terms as a supplier, and grow an independent career however, whenever, and wherever they see fit.

What do outside IR35 working practices look like?

Outside IR35 limited company contractors operate as independent businesses, which means the following five fundamentals:

Control: they retain autonomy over how, where, and when they work, with clients focusing on “deliverables” rather than dictating working methods.
Substitution: they often have the right to send someone else to complete the work if needed, showing that the services aren’t dependent on their personal service.
Financial risk: such as costs of correcting defects, unbillable time, and liability for the successful delivery of the project, are on their shoulders.
Mutuality Of Obligation (MOO): while IR35 case law acknowledges that basic MOO exists in most contracts (i.e. payment for agreed work), outside IR35 contracts lack ongoing obligations -- clients don’t have to offer more work, and contractors aren’t required to accept it. This helps to reinforce a project-based, independent relationship.
Business-like behaviour: outside IR35 contractors often work for multiple clients, market their services, and invest in training or tools to support their commercial venture.

For IT contractors specifically, working outside IR35 typically means handling short-term, project-based gigs, with the freedom to choose how you’d like to get the work done, albeit to client-set ‘milestones’ or ‘deadlines.’

For example, let’s say a contract /freelance web developer is brought in on an outside IR35 basis to create a new website -- by a deadline.

Once the site is done, so is their contract! This contrasts an “inside IR35” assignment, where contractors often undertake “Business As Usual” (BAU) work, under day-to-day management.

Four (annoying!) ways organisations can put your outside IR35 status at risk

While the benefits of outside IR35 should be becoming clear to you, some ‘clients’ inadvertently blur the lines of outside IR35 working by slipping into employment-like practices (and thereby becoming ‘employers’ in employment status-speak), such as:

Excessive control: treating contractors like employees by dictating how, when, and where the work is done, supervising their daily activities, monitoring their hours, or being able to reassign their tasks.
Personal service: requiring the contractor to personally deliver the work with no option to send a substitute.
Ongoing obligations: offering continuous work or retaining contractors indefinitely on project after project, or payment for periods when no work is carried out.
Integration into the business: expecting contractors to participate in team activities; staff meetings, following company policies unrelated to their project, or offering benefits and perks only meant for employees.

Top 4 ways outside IR35 contractors can push back

Whether you're responsible for your own IR35 position or aiming to avoid any challenge to a client-issued Status Determination Statement (under the off-payroll working rules), IT contractors should take the following steps to protect their outside IR35 status:

Watertight contracts: ensure the written contracts accurately reflect your independence, with clear clauses around control, substitution, intent of the parties, risk and MOO.

Ensure the working practices align with the contract: this is crucial! A strong contract is meaningless if it doesn’t match the reality. Once the terms are agreed upon, all parties must adhere to them.

Maintain business-like features or ‘business badges’: things like company stationery, a business website, business insurances, other clients where possible, and use of your own office and equipment all help to demonstrate you are genuinely ‘In Business On Your Own Account.’
Challenge employment-like treatment: don’t let clients micromanage! Stand your ground on flexibility, insist on autonomy in how you work, and steer clear of conditions or perks that make you look like an employee.

What's next? IR35 case law -- in a nutshell

Exclusively next week for Free-Work, I will spotlight three recent IR35 cases.

The trio will contain actual, real-world examples from the courts of limited company taxpayers potentially knowing how outside IR35 appeals but, ultimately, not succeeding in pushing back enough when the relationship blurred and paying a hefty price to HMRC as a result.

Outside IR35 recap...

In the meantime, remember -- adopt outside IR35 working practices (if that’s how you are engaged or determine yourself to operate); safeguard those practices from any detrimental conduct by clients, and be prepared to push back to safeguard yourself, your company and your contracting operation. Assuming; that is, you’re seeking the most efficient and autonomous way to operate as a limited company contractor in 2025!