Inside vs Outside IR35: The Contract Recruiter's Guide to Getting It Right

By Zac Donlon

Candidate News & Insight

Client News & Insight

Posted 7 days ago

Right, let's talk about IR35. After years of placing tech contractors, I've come to one conclusion: most people overcomplicate IR35. It's not rocket science, but it's not exactly intuitive either. Mostly, it's just poorly explained.

So, here's my attempt to explain what actually matters, when it comes to inside vs outside IR35, without sending you into an existential crisis.

What IR35 Actually Means

Let's start with the basics. "Outside IR35" refers to a situation where a contractor is not considered an employee for tax purposes under the UK's IR35 legislation. Essentially, you're running a proper business providing services through your personal service company (PSC).

Inside IR35 means HMRC views you as an employee for tax purposes, requiring you to pay income tax and NICs similar to an employee, typically resulting in higher tax deductions and reduced take-home pay.

The difference? About 25-30%

The Three Tests That Really Matter

From my experience placing hundreds of contractors, there are three key IR35 status tests that industry experts acknowledge as the most important- the ‘three pillars’ if you wish: Substitution, Control, and Mutuality of Obligation (MOO).

1. Right of Substitution

This is the big one. Can you send someone else to do the work if you're unavailable? A contractually enforceable right to substitute is absolutely vital to determining IR35 status.

What I tell contractors: Don't rely on verbal assurances. Your contract needs to explicitly state you have the unfettered right to substitute yourself, and the client must be willing to accept a suitable replacement. I've seen contractors wave around emails saying "of course you can send someone else," only to discover their actual contract tells a different story entirely.

2. Control

One of the most important determinants of IR35 status revolves around the extent to which a client controls where, when and how an individual performs their work.

The reality check: If you're working 9-5, attending all the team meetings unrelated to your deliverables, following company processes religiously, but basically invisible among the permanent staff…well, there's your answer.

3. Mutuality of Obligation (MOO)

This one's about ongoing obligation. Is the client obliged to offer you more work? Are you obliged to accept it? If the answer to either is yes, you're edging towards inside IR35.

A sign of a contractor working outside IR35 is when the contractor is engaged on a project-by-project basis and has no limitations to working across several different companies at the same time. (even if all your time is spent with one client)

What We’re Seeing in 2025

Here's what's changed in the contracting world this year:

Clients are getting savvier: Medium and large clients now determine your IR35 status themselves. Gone are the halcyon days of "we'll let you sort it out."

More outside IR35 opportunities: Companies have invested in proper compliance, which means more genuine contractor positions rather than "employee but with extra steps."

Status determination statements: Every medium-to-large client provides these now. If you disagree, you can challenge it, and I've helped many contractors do exactly that

If HMRC finds that a contractor is being treated as a full-time employee, or is receiving the same benefits as a full-time employee, they will be deemed as inside IR35.

The Hiring Manager's Perspective

Now, let me flip this around for the hiring managers and procurement teams reading this. You're not just trying to avoid HMRC penalties, you're also trying to attract the best contractor talent.

What works:

Be upfront about IR35 status in job adverts

Create genuine contractor positions, not disguised employment

Focus on outcomes, not hours worked

Give contractors the autonomy they need to deliver results

It isn’t really that difficult to change your working practices with contractors to enable them to be off payroll

IR35 Isn’t Going Anywhere

Here's what I tell both contractors and clients: IR35 isn't going anywhere. It's like the weather…you can complain about it all you like, but you still need an umbrella.

But here's the marginally good news, there are decent opportunities out there for both sides when you get it right.

For contractors: Don't take contracts that are obviously inside IR35 and hope for the best when you really want outside roles. Be honest about what you're looking for, and work with specialist recruiters (like us) who understand the nuances.

For hiring managers: Invest in proper compliance. Create genuine contractor roles. The best talent will flock to you, and you'll avoid the HMRC headaches, and you’ll save a bit of money too.

Getting It Right

At Forward Role, we've developed our own IR35 assessment process. Before we even present a role to contractors, we've already evaluated it against the key tests.

Our approach:

Review the contract terms thoroughly

Understand the day-to-day working practices of the role

Be transparent with everyone involved

The result? Our contractors know exactly what they're getting into, and our clients get the talent they need without compliance worries.

IR35 doesn't have to be the bureaucratic nightmare everyone pretends it is. With a bit of common sense and honest assessment, both contractors and hiring managers can navigate it without requiring therapy.

The key is being realistic about what you're actually offering or accepting. If it looks like employment, smells like employment, and includes an invite to the Christmas party…it's probably employment.

But when you get it right? Things work rather well. Contractors deliver results with the autonomy they need, and clients get specialist skills without the permanent employment headaches.

Need Help Navigating IR35?

Our Forward Role contract recruitment specialists, live and breathe these complexities every day. We work with high-growth companies who understand the value of proper contractor relationships.

Ready to get IR35 right? Let's have a chat about how we can help you hire the brightest contract talent for a short-term project, or if you’re a contractor looking to secure your next role. Get in touch!