Last updated: 16 October 2026
The question
I am an IT contractor working for a government department through my own limited company at £300 a day. I have been told contractors will be put on the department’s payroll. I do not want to be treated as an employee. What should I do?
How the off-payroll working rules work
Since April 2017 in the public sector, and since April 2021 for medium and large private sector clients, the client decides whether IR35 applies. It must give you a Status Determination Statement (SDS) with its reasons. If the role is “inside IR35”, the fee-payer, usually the agency or the client, deducts income tax and employee National Insurance from your invoices and pays employer National Insurance at 15%. Your company receives the net amount. This does not make you an employee: you get no holiday pay, sick pay or pension rights from the client.
Inside or outside: what matters
| Factor | Points to outside IR35 | Points to inside IR35 |
| Control | You decide how the work is done | The client directs how, when and where |
| Substitution | You can send a substitute and it is realistic | You must do the work personally |
| Mutuality of obligation | No duty to offer or accept more work | Ongoing work expected on both sides |
| Financial risk | You fix mistakes at your cost, price by project | Paid by the day regardless of outcome |
| Integration | You work as a separate business | You are treated like staff |
Your options
- Ask for the SDS and challenge it. Use the client’s disagreement process. It must respond within 45 days.
2. Negotiate the rate. An inside role often justifies a higher day rate to reflect the extra tax.
3. Accept the role inside IR35. Your company keeps receiving fees, but most of the money is taxed as employment income. You cannot claim the old 5% expenses allowance.
4. Use an umbrella company. It employs you and runs PAYE. Check any umbrella carefully, as there are many disguised remuneration schemes.
5. Work for small private clients. If the client meets the small company test (from April 2025, two or more of turnover up to £15 million, balance sheet up to £7.5 million and up to 50 employees), your own company decides status instead.
6. Change how you work. Fixed-price projects, real substitution and several clients strengthen an outside position.
Example
At £300 a day for 220 days, fees are £66,000. Outside IR35, you might take a small salary and dividends taxed at 10.75% and 35.75%. Inside IR35, the fee-payer treats almost all of the £66,000 as salary, so income tax and 8% and 2% National Insurance are deducted. Your net income is noticeably lower, which is why negotiating the rate matters.
Keep good records
Keep contracts, the SDS, emails about how work is done and evidence of substitution or business risk. If HMRC later reviews the engagement, these show what the working practice really was.
Frequently asked questions
Can the client give a blanket inside decision for all contractors?
It must take reasonable care on each role. Blanket decisions can be challenged.
Who is liable if the tax is not paid?
The fee-payer is liable, and liability can move up the supply chain.
Does IR35 affect my pension contributions?
Inside roles leave less profit for employer pension contributions through your company.
Should I close my company?
Not necessarily. Many contractors keep their company for outside roles.
Related: using a personal service company, choosing a business structure and planning for freelancing tax.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with IR35 reviews for contractors. See our contractor accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
