Getting Hired

Inside vs Outside IR35: How UK IT Contracting Really Works, and What Umbrella, PAYE and a Limited Company Do to Your Take Home

SK Chauhan · Founder · October 1, 2026 · 19 min read

Two agencies ring you about what is obviously the same programme of work at the same bank.

The first says £600 a day, inside IR35, through one of three umbrella companies on their approved list. The second says £500 a day, outside IR35, straight into your own limited company. You are £100 a day better off on the first one, so that is the one you chase.

Except you are not. On a plausible illustration of the first offer, £600 of assignment rate produces something near £517 of gross pay, before a single penny of your own income tax comes off. The £100 gap closes to about £17, and then the two figures get taxed in completely different ways, which means the comparison you just made was not a comparison at all.

This is the part of UK contracting that nobody sits you down and explains. Not whether to contract, which is a separate decision, and one worked through in the guide to weighing a day rate against a salary. This article assumes you have already decided to look at contract work. What it covers is the bit that follows: who decides your tax status, what they are actually deciding on, what to do when they get it wrong, and what each of the three ways of being paid does to the money.

One thing to say plainly before anything else, and it is not buried at the bottom for a reason. This article is general information for people looking at contract roles. It is not tax advice, it is not legal advice, and it cannot be, because the answer in your case depends on your contract, on how the work is really carried out, and on your wider financial position. Tax rates, National Insurance thresholds and the definitions that decide whether a company counts as small all change, and several of them have changed recently. Wherever a specific figure would matter to your decision, this article tells you to look it up on GOV.UK rather than quoting one at you. Every pound figure below is an illustration chosen to make the structure visible. None of them is a statement about what any role pays or what any rate produces. Before you sign, get an accountant who has read your contract to model it properly.

With that said, here is the machinery.

What are the off-payroll working rules, and why does IR35 exist at all?

The off-payroll working rules are HMRC’s answer to a simple problem. Someone can work exactly like an employee, five days a week, on a manager’s instructions, and still be taxed as a business because there is a limited company sitting in the middle of the arrangement. The rules ask what the relationship would look like if that company were removed, and tax it accordingly.

IR35 is the old press release number that everyone still uses. The legislation itself sits in the Income Tax (Earnings and Pensions) Act 2003, and there are two versions of it running in parallel, which is where most of the confusion starts.

The original version puts the decision, and the tax bill, on your own company. The reformed version, which arrived in the public sector in April 2017 and extended to medium and large private sector clients in April 2021, moves both of those to the people paying you. Which version applies to your engagement depends entirely on the size of the end client, and that single fact changes who carries the risk if the answer turns out to be wrong.

So “inside IR35” and “outside IR35” are not two products on a shelf. They are two possible conclusions about work that already exists, reached by somebody else, about a relationship you may not have described to them.

Who actually decides whether I am inside or outside IR35?

For engagements with medium and large private sector clients and with public sector bodies, the end client decides, not you and not the agency. The client must take reasonable care, issue a Status Determination Statement with its reasons, and pass it to you and to the party it contracts with. Where the client qualifies as small, the decision returns to your own limited company.

That sentence catches almost everyone out on their first contract, because the whole market talks as though status were something you choose when you set up. It is not. On a large client engagement your opinion is an input at best. You can supply facts, you can push back through a formal process, and you can walk away. You cannot decide.

Here is who holds what, and it is worth knowing which box you are in before the conversation about rate even starts.

Party in the chain	What they are responsible for
End client, medium or large	Deciding your status, taking reasonable care over that decision, issuing the Status Determination Statement, passing it to you and to the agency, and running the disagreement process if you challenge it
End client, small	Nothing on status. The decision goes back to your own company under the original rules
Agency or fee payer	Operating PAYE on your payments where the determination is inside IR35 and it is the party closest to your company in the chain
Your own limited company	Deciding status where the client is small, and accounting for the tax that follows from that decision
You personally	Supplying accurate facts, reading the determination, and deciding whether the engagement is worth taking on those terms

Two consequences of that table are worth saying out loud.

The first is that an agency telling you a role is outside IR35 is relaying a decision, not making one. Ask whose decision it is and whether it is in writing. A recruiter who says “it is outside, the client is relaxed about all that” is describing an attitude rather than a determination, and an attitude does not protect anybody.

The second is that liability follows responsibility. Where the client is medium or large and it fails to take reasonable care or fails to pass the statement down the chain, the client itself can be left carrying the PAYE. Where the fee payer fails to operate PAYE on an inside determination, the debt can move up the chain to the client. Since April 2024 HMRC has been able to set off tax that you or your company have already paid against the deemed employer’s bill, which reduced a long standing double taxation problem in these cases, though it did not remove the exposure. None of that is your problem to solve, but it explains why large clients became so cautious after 2021 and why blanket inside determinations appeared on whole programmes.

What changes when the end client is genuinely small?

If the end client meets the small company definition taken from the Companies Act, the reformed rules do not apply to that engagement. Responsibility for deciding status goes back to your own limited company, and so does the tax risk. You get the autonomy and the exposure in the same envelope. Nobody will issue you a statement, and nobody upstream is checking your working.

The small company test looks at turnover, balance sheet total and the number of employees, and a company is small if it is under the limits on two of those three. The figures themselves were uplifted for company reporting purposes, but they feed into the off-payroll rules on a lag, because a client has to meet the conditions across consecutive financial years before its status changes. That means the thresholds currently governing off-payroll working are not necessarily the ones you will see quoted in coverage of the uplift, and the effect on who counts as small arrives later than the headlines suggest. Look up the current position on GOV.UK rather than trusting a number you read in an article. Unincorporated clients are handled differently again, on turnover alone.

What matters practically is this. An outside IR35 engagement with a small client is not the same reassurance as an outside IR35 engagement with a large client that has issued a reasoned determination. In the first case the person who decided is you. If HMRC later disagrees, the bill lands on your company, and “the client said it was fine” is not a defence, because the client was never asked to say anything. Small client engagements are where contract review by a specialist, and in many cases status insurance, stops being optional caution and starts being ordinary risk management.

Worth asking on any outside IR35 role: “Is the end client within the off-payroll rules, or does it qualify as small? If it is within the rules, please send me the determination. If it qualifies as small, I will have the contract and the working practices reviewed before I accept.”

Which tests actually decide the determination?

Three tests do most of the work, and they come from employment case law rather than from a form. The question they are all circling is whether, if you stripped your company out of the picture, what remains would look like a contract of employment.

Test	The question behind it	Pointing outside	Pointing inside
Right of substitution	Must the work be done by you personally?	Your company can send a suitably qualified replacement, and the client cannot simply refuse	The client engaged you by name and would not accept anyone else
Supervision, direction and control	Who decides what is done, how, when and where?	A defined deliverable, methods left to you, working hours set by the outcome	Tasks handed out from a backlog, a named line manager, set hours, a required location
Mutuality of obligation	Must the client offer work and must you accept it?	Specified work with an end point, no expectation of anything after it	An open ended engagement where you are simply given the next thing

Failing any one of those three convincingly is usually enough to put an engagement inside. Passing all three is where the secondary factors start to matter, and in a real determination they matter a great deal, because they are what tips a borderline case.

Secondary factor	What the client is looking at
Financial risk	Do you carry any? Fixed price elements, rework at your own cost, payment on acceptance, unpaid time when a milestone slips
Equipment	Whose laptop, whose licences, whose tooling. Client supplied kit is common for security reasons and is not fatal on its own, but it counts
Part and parcel of the organisation	Line management, appraisals, a place on the internal org chart, access to staff benefits, a team social budget, a staff pass that is not a visitor pass
Exclusivity	Are you free to take other clients during the engagement, and is there anything in the contract stopping you?
In business on your own account	Insurance, your own branding, a website, other clients in the last two years, your own professional development spend
Intention of the parties	Only ever a tie breaker. The label the parties chose matters least of all the factors here

Two practical notes. HMRC publishes a tool called Check Employment Status for Tax, known as CEST, on GOV.UK, and a great many clients run it. HMRC stands behind the output where the information put in was accurate and the tool was used in line with its guidance, which is exactly why the answers given to it are worth more scrutiny than the result. A determination produced from a job description rather than from how the work will really be done is fragile.

And the paperwork is the smaller half of the question. What would be examined, if this were ever challenged, is how the engagement actually ran. A contract with a beautiful substitution clause and a reality in which you attended daily stand ups, took tickets from a team backlog and had a performance conversation with a head of department will be read on the reality.

What does the same job look like written two ways?

Same bank, same six month piece of data platform work, same person doing it. Here is how the role reads when nobody has thought about status, followed by how it reads when somebody has.

Version one, which reads inside.

Data Engineer, reporting to the Head of Data Platforms. Hours 09:00 to 17:30, Monday to Friday, London office three days a week. You will join the platform squad, attend daily stand ups, and pick up tickets from the team backlog in the order the product owner has prioritised them. Laptop, licences and accounts provided on day one. Initial six months with a view to extension, subject to business need. Your line manager will agree objectives with you and review progress at the usual cycle points. Please put any leave through the team calendar for approval.

Read it against the three tests. It is you by name in a named team, a manager directing the work, hours and location fixed, tasks arriving from a backlog rather than a scope, and an open ended extension expectation with leave approval on top. That is an employment relationship with an invoice attached.

Version two, which reads outside.

Engagement: delivery of the customer data platform migration, scope as set out in Schedule 1. Milestones: environment build and validated by week four, historical load and reconciliation signed off by week twelve, cutover and documented handover by week twenty two. The supplier determines the method, the sequence and the working pattern, subject to the milestone dates and to agreed site access windows for cutover weekends. The supplier may substitute an equivalently qualified engineer on five working days’ notice, subject to security clearance, and the client may not unreasonably refuse. Supplier provides its own development hardware and tooling, excluding client production access, which is issued under the client’s security policy. Payment on milestone acceptance. Rework arising from defects in supplier deliverables is at the supplier’s cost. No entitlement to client appraisal, bonus, training budget, internal vacancies or staff benefits. Nothing in this engagement obliges the client to offer further work or the supplier to accept it.

Every clause in the second version is doing a job.

Clause in version two	Which test it speaks to
Scope in a schedule, with dated milestones	Mutuality of obligation and control. There is a defined thing to deliver and an end
Supplier determines method, sequence and working pattern	Supervision, direction and control
Substitution on notice, refusal must be reasonable	Right of substitution, and it is a real right rather than a decorative one
Own hardware and tooling	Equipment, and by extension being in business on your own account
Payment on milestone acceptance, rework at supplier cost	Financial risk, which is the factor most often entirely absent
No appraisal, bonus, training, internal vacancies or benefits	Part and parcel of the organisation
No obligation to offer or accept further work	Mutuality of obligation, stated explicitly

Here is the uncomfortable point. You cannot write version two yourself and make it true. If the client’s delivery model is squads, stand ups and a shared backlog, then the work is what it is, and a contract drafted to describe something else is a risk rather than a solution. What you can do is ask, early, which of the two the engagement really is, and let the answer inform the rate you ask for rather than the paperwork you hope for.

What is a Status Determination Statement, and when am I entitled to one?

It is the end client’s written conclusion on your employment status for tax, together with the reasons behind it. You are entitled to receive it when the client is medium or large, and it should reach you before the engagement starts. Until the client has issued it and passed it down the chain, the client itself stays responsible for the PAYE due.

A statement that is worth reading has four things in it: the conclusion, the reasons for it, enough detail about the working practices that you can recognise your own engagement in the description, and a route to disagree. A statement that is one line saying “this role is inside IR35” is not much of a statement, and the thinness is itself information about how carefully the decision was made.

Read it for the gap between what it describes and what you have been told. That gap is where problems live later. If the determination says you will work to milestones and set your own hours, and the interviewer told you about the daily stand up and the three days a week in the office, one of those two accounts is wrong, and it is worth finding out which before you start rather than at month five.

Requesting the statement. Send this once the offer is verbal and before you sign anything.

Hi Dan,

Thanks for confirming the role. Before I sign, could you send me the Status Determination Statement from the end client, with the reasons, and confirm who in the chain is the fee payer?

If the determination is outside, I would also like to see the contract and a short note on the intended working practices, because my accountant reviews both before I accept an outside engagement.

If the end client qualifies as small and so sits outside the off-payroll rules, please say so, because the determination is then mine to make and I will have the contract reviewed on that basis.

Happy to move quickly once I have those.

Nikhil

Nothing in that message is confrontational and nothing in it is unusual. Agencies working on properly papered accounts send these documents several times a week. The ones who go quiet in response have told you something useful.

How do I challenge a determination I think is wrong?

Use the client-led disagreement process. Write to the end client, say which determination you are disputing, set out the working practices that point the other way, and ask for a reconsideration. The client has forty five days to respond, either confirming the original decision with its reasons or issuing a new statement. The first determination applies while the challenge runs.

Three things decide whether a challenge goes anywhere. Raise it early, because a determination that has been operated for four months is a harder thing for a client to unwind than one that has been operated for four days. Argue facts rather than conclusions, because a client can act on “the contract has no substitution clause and I was told one is not available” and cannot act on “I think this is outside”. And keep it short, because the person who reads it is usually in procurement or HR, has a queue, and will be looking for the specific points to put back to the hiring manager.

Challenging a determination. Keep it to one screen and number the points.

Dear Sir or Madam,

I am writing under the client-led disagreement process in the off-payroll working rules to ask you to reconsider the Status Determination Statement dated 12 September for the data platform migration engagement, reference SDS-4471, which concluded that the engagement is inside IR35.

My reasons are the working practices as they have been described to me:

The engagement has a defined scope and three dated milestones in Schedule 1, with payment on acceptance of each milestone, and no obligation on either side beyond the final handover.

I was told at interview that the method and sequence of the work are mine to determine, and that I would not be assigned tickets from the platform backlog.

The contract at clause 7 permits substitution of an equivalently qualified engineer on notice, and I have been told this right is real rather than nominal.

I provide my own development hardware and tooling, and I carry the cost of rework arising from defects in my deliverables.

I am not part of any appraisal, bonus, training or internal vacancy process, and I hold two other client engagements this financial year.

I understand you have forty five days to respond and that the original determination applies until then. If it would help, I am happy to answer questions on any of the five points above, or to have the relevant contract clauses sent across.

Yours faithfully,

Nikhil Rao

If the answer comes back confirming the original determination, you have two realistic options and neither of them is a tribunal. Take the engagement at a rate that reflects the status, or decline it. What you should not do is take it and then behave as though the determination said something else.

Umbrella, agency PAYE or your own limited company: what is actually different?

Three ways of being paid, and which of them is available to you is decided by the determination rather than by preference. Inside IR35 gives you umbrella or agency PAYE. Outside IR35 opens your own limited company. The differences are not cosmetic.

Dimension	Umbrella company, inside	Agency PAYE, inside	Your own limited company, outside
Who employs you	The umbrella	The agency	Your own company
Who signs the client facing contract	The umbrella or the agency, not you	The agency	Your company
Who decides your status	The end client	The end client	The end client, or your company where the client is small
What the quoted rate is	An assignment rate with employment costs inside it	Usually gross pay, with employment costs carried separately	A gross fee into your company
Holiday pay	5.6 weeks statutory, funded out of the assignment rate	Statutory, funded by the agency within its own rate structure	There is none. A day off is a day not invoiced
Statutory sick pay	From the umbrella, if you qualify	From the agency, if you qualify	None. Your company pays you only what it has
Pension	Auto-enrolment with the umbrella’s scheme	Auto-enrolment with the agency’s scheme	Your company contributes, often the most tax efficient route available to you
Employment rights against the end client	None	None	None
Unfair dismissal and redundancy	Against the umbrella, subject to the qualifying rules	Against the agency, subject to the qualifying rules	Not applicable
Business expenses	Very limited. Most travel to a single client site does not qualify	Very limited	Genuine business expenses, subject to the rules
Insurance	Carried by the umbrella	Carried by the agency	Yours. Professional indemnity, public liability and usually employers liability
Admin you carry	A timesheet	A timesheet	Accounts, VAT if registered, payroll, a confirmation statement, corporation tax, invoices, chasing payment
Who carries the tax risk if the status is wrong	The fee payer and the client	The agency and the client	Your company, where the client is small
Cost to run	The umbrella margin	None	Accountant, insurance, company filing costs
Between assignments	Often continuous employment with the umbrella, which helps with credit history	Employment usually ends with the assignment	The company continues. No income unless you invoice

Two rows deserve special attention because they are the ones people get wrong in opposite directions.

“Employment rights against the end client” is None in all three columns. Being inside IR35 makes you an employee for tax. It does not make you the client’s employee for anything else. There is no redundancy pay from the client, no unfair dismissal claim against the client, and no notice beyond what the contract says.

“Cost to run” looks like an argument for the umbrella, and for a single six month inside engagement it often is. Keeping a limited company alive costs real money in accountancy, insurance and filing, and if every engagement available to you is being determined inside, the company is an expense with no function. Plenty of contractors close theirs down for that reason. Plenty of others keep one dormant. That is a conversation with your accountant, because the cost of closing and reopening is not trivial either.

Why is an umbrella assignment rate not your pay?

Because the rate the agency quotes for an umbrella engagement is the amount the agency pays the umbrella, and the umbrella has to fund the costs of employing you out of it before it can work out your gross pay. Employer National Insurance, the apprenticeship levy, the umbrella’s own margin and your holiday pay all come from the same pot. Then your own income tax and National Insurance come off what is left.

This is the single most expensive misunderstanding in UK contracting, and it is entirely avoidable. Here is the order of operations on a monthly illustration.

Everything in the two tables below is an illustration of the structure, not a claim about current rates, thresholds or margins. The employment cost figures depend on the current employer National Insurance rate, the current secondary threshold and the apprenticeship levy, all of which you should check on GOV.UK or get from the umbrella in writing. Replace every number with a real one before you decide anything.

Step	What happens	Illustrative figure
1	Agency pays the umbrella your assignment rate for the days worked. £480 a day, 20 days	£9,600
2	Umbrella deducts its margin, here illustrated at £25 a week	less £100
3	Umbrella deducts the cost of employing you, being employer National Insurance and the apprenticeship levy on the pay it is about to make	less £1,220, illustrative only
4	What is left is your gross pay for the month, and your holiday pay is inside this figure rather than on top of it. The holiday element may reach you with each payment or be held until you take leave, and the umbrella has to tell you which	£8,280
5	Of that gross, the holiday element at the conventional accrual figure, which is 5.6 weeks of leave across a 46.4 week working year, or 12.07 per cent	about £890 of the £8,280. The 12.07 per cent is applied to basic pay rather than to the total, so within a gross figure the holiday element works out slightly lower than a straight 12.07 per cent of it
6	Your own income tax, employee National Insurance, pension contribution and any student loan come off	set by your tax code and your choices
7	Net pay arrives	whatever step 6 leaves

So a £480 assignment rate produced £414 a day of gross pay on this illustration, which is a haircut of around 14 per cent before your own tax has been considered at all. That is not the umbrella being greedy. Steps 2 and 3 are mostly tax and one modest fee, and they would have been paid by an employer out of the same budget in a permanent job. The difference is that in a permanent job they were never described to you as your rate.

Now the comparison that started this article, over a full year.

Same programme, two offers	Inside IR35, umbrella	Outside IR35, own company
Quoted rate	£600 assignment rate per day	£500 per day
Illustrative billable days	200	200
Into the payer	£120,000 to the umbrella	£100,000 into your company
Umbrella margin, illustrated	less £1,300	none
Employment costs, illustrated	less £15,300	none at this stage
Company running costs, illustrated	none	less £3,000 for accountancy, insurance and filings
What the figure becomes	about £103,400 of gross employment pay, holiday pay included	about £97,000 in the company, before corporation tax and before you extract anything
Equivalent per day	about £517	£500 into the company
Taxed as	employment income through PAYE	company profit, then salary and dividends, on rules your accountant will model

The £100 gap turned into about £17, because the two bottom rows are taxed under different regimes and the outside column still has an extraction decision inside it that only an accountant who knows your full position can model. Which is the honest conclusion: you cannot compare an inside rate with an outside rate by looking at them. You can only compare two written illustrations of what each one produces.

How do I get an illustration I can actually compare?

Ask for it in writing, on the exact rate offered, before you sign anything, and ask for the same thing from every payer in the running. The agency must give you a Key Information Document before you agree terms, and that document plus a full take home illustration from each umbrella is the only basis on which the numbers become comparable. Verbal percentages are worth nothing.

Asking the agency, at the point the rate is first mentioned.

Hi Dan,

Before I take this further, four things on the rate.

Is this role inside or outside IR35, and is that from the end client’s determination or is it still to be confirmed?

If it is inside and paid through an umbrella, is the £600 an assignment rate or is it gross pay? If it is an assignment rate, please confirm that employer National Insurance, the apprenticeship levy, the umbrella margin and holiday pay all come out of it.

Could you send the Key Information Document, and ask each of your approved umbrellas for a full take home illustration on £600 a day, five days a week, showing every deduction labelled and in order?

And is there a PAYE option on your own payroll? If so, what is the gross rate for that, so I can compare like with like.

Thanks,

Nikhil

Then one more message to each umbrella on the list, because the illustration is the document the whole decision rests on.

Asking an umbrella for the illustration.

Good morning,

The agency has put me forward for a six month assignment at an assignment rate of £600 a day, five days a week, and has named you as one of their approved providers.

Please send a written take home illustration on that exact rate, showing every deduction in the order it is taken and labelled individually, so that the assignment rate less the labelled employment costs equals my gross pay, and the gross pay less PAYE deductions equals what reaches my account.

Alongside that, could you confirm your margin and whether it is a fixed weekly amount or a percentage, how holiday pay is handled and whether any accrued balance is paid out at the end of the assignment, which pension scheme you auto-enrol into, and whether there are any charges at all besides the margin.

Finally, please confirm that you operate standard PAYE only, with no loans, advances, annuities, trust payments or offshore elements of any kind.

Many thanks,

Nikhil Rao

If two illustrations on the same assignment rate come back with materially different net figures, something in one of them is not standard PAYE. That is not a bargain. That is the thing to walk away from, and the next section is about why.

What should I ask the recruiter before I accept?

Six questions, asked in this order, before the rate conversation closes rather than after. None of them is unusual and none of them makes you a difficult candidate. An agency working on a properly papered account answers all six from memory.

Is this inside or outside IR35, and has the end client issued a determination yet? If it has, please send me the statement with the reasons.

Is the end client within the off-payroll rules, or does it qualify as small? If it qualifies as small, the determination is mine and I will have the contract reviewed.

Who is the fee payer, and how many parties are there between me and the end client?

Is the rate an assignment rate or gross pay, and if it is an assignment rate, what comes out of it before my gross pay is calculated?

If it is inside, what are the payment options? Your PAYE, an approved umbrella, or both, and what is the gross rate on each?

What notice applies in the first month, and what happens to accrued holiday pay if the assignment ends early?

Question three earns its place quietly. Every additional party in the chain is another margin and another payment delay, and on an inside engagement it changes who the fee payer is. Question six earns its place because the first month is where engagements actually end, and a two day notice provision in week three is a very different risk from the one in the same contract at month five.

Which umbrella arrangements should I refuse outright?

Anything that promises a higher take home percentage than standard PAYE can produce. That usually means part of your money arriving as a loan, an annuity, a trust payment, an advance or a grant, or being routed through an offshore entity. HMRC publishes named tax avoidance schemes and promoters on GOV.UK, and the unpaid tax in these arrangements has historically been chased from the worker.

That last clause is the whole point and it is the reason to be unromantic about this. In the disguised remuneration arrangements of the last twenty years, the promoter took a fee and the worker eventually received the demand. The marketing was confident, the paperwork looked professional, and the people who signed up were not reckless. They were told it was compliant by someone who sounded like they knew.

Here is what to look for, and how the pitch usually sounds.

Red flag	How it is presented
A take home percentage well above everyone else’s on the same rate	“We get people 82 to 85 per cent. The others cannot match it”
Part of the payment not described as pay	A loan, an advance, an annuity, a grant, a trust distribution, a capital payment, a “reward”
Two payments, one taxed and one not	“Your salary goes through PAYE and the balance comes separately”
An entity outside the UK in the chain	A payroll company, trustee or employer registered offshore
Pressure and secrecy	“Do not mention this to the agency”, “sign today, the rate is being withdrawn”
A payslip that does not reconcile	The assignment rate less the labelled deductions does not equal the gross pay shown
No clear answer on the margin	“It is all included, do not worry about the breakdown”
Introducer paid a commission to move you	Someone who is not the umbrella keeps ringing about switching

Two names worth knowing so you can look them up rather than take my word for anything. HMRC’s Spotlights series publishes warnings about specific arrangements as they appear, and HMRC also publishes a list of named tax avoidance schemes, promoters and enablers, both on GOV.UK. Search for those by name. There is also a separate piece of legislation on Managed Service Companies which can catch arrangements where a third party influences how your own limited company pays you, so an offer to run your company’s payroll for you in a way you do not control is not a convenience.

Two structural things that make the whole question easier now than it was. Under rules that took effect on 6 April 2026, the agency that supplies you, or the end client where no agency is involved, carries liability for the PAYE and National Insurance due on your assignment if the umbrella does not pay it over. That is why agencies insist on their own approved list, and it means the agency now has money at stake in that choice. Separately, industry accreditations such as FCSA and Professional Passport exist, and asking for the certificate rather than accepting the logo takes one email.

None of that removes your own judgement. If an illustration is better than everyone else’s on the same rate, the difference is tax that somebody expects you to pay later.

Common mistakes

Treating an inside assignment rate and an outside day rate as the same unit. They are not. One has employer taxes and a margin inside it and the other does not, so the only honest comparison runs through two written illustrations.

Accepting “it is outside” on the phone. Ask whose determination that is and get the statement. A recruiter’s impression of a client’s attitude carries no weight with anybody and protects nobody.

Assuming inside IR35 gives you employment rights at the client. It gives you employment taxes. Your statutory rights sit with the umbrella or the agency, and you have none against the end client at all.

Challenging a determination in month five. The disagreement process works best before the engagement starts. Once PAYE has been operated for months, you are asking a client to unwind something rather than to decide something.

Not realising holiday pay is inside the rate. On an umbrella engagement your 5.6 weeks are funded from the assignment rate you were quoted. It is your money either way, but it is not extra money, and if it is accrued and retained you need to know how to claim it and what happens to the balance at the end.

Picking the umbrella with the best headline net figure. On identical assignment rates, standard PAYE produces near identical results. A better number means a different structure, and you carry that.

Letting the contract describe an engagement that is not the one you will work. Working practices are what would be examined. Paperwork drafted to describe something else is exposure dressed up as protection.

Ignoring the number of parties in the chain. Each layer takes a margin, adds payment days, and changes who the fee payer is. Ask how many there are before you accept, not when an invoice is late.

Expert tips from the delivery side

Ask about status in the first two minutes of the first call. It changes the rate you should be quoting, so asking it after you have named a number is the wrong way round.

Keep a short working practices note for every engagement. Two paragraphs on what you delivered, how you decided the method, whether substitution was ever available, and what kit you used. It takes ten minutes at the start and is the only contemporaneous record you will have.

Price inside engagements from the gross pay, never from the assignment rate. Take the illustration, divide the annual gross by your realistic billable days, and negotiate from that figure. It changes what you are willing to accept, which is the point.

Get the Key Information Document without being asked twice. It exists for this exact purpose and an agency that cannot produce one quickly is telling you about its back office.

Do not close your limited company in a hurry. Closing and reopening costs more than keeping one dormant, and the decision depends on your own tax position rather than on the current engagement. One paid hour with an accountant settles it.

On outside engagements with small clients, buy the contract review. You are the one deciding status, which means you are the one carrying it. A specialist review of the contract and the working practices is a small cost against that.

Put your availability date on everything. On a contract shortlist, a confirmed start date beats a slightly better CV more often than experienced candidates expect.

Put your status position on the CV header, next to your availability date. “Outside IR35 preferred, will consider inside at a rate that reflects it” saves you the call that falls apart at the end, and it tells the agency you understand the difference. The rest of the contract CV re-cut is covered in the guide to re-cutting a permanent CV for a contract shortlist.

Never accept an illustration verbally. If it is not in a document with labelled lines, you have not been given an illustration. You have been given a sales figure.

The pre-signing checklist

Run this before you sign anything, on every engagement, inside or outside.

FAQs

Who decides whether a contract is inside or outside IR35?

What is a Status Determination Statement?

What does inside IR35 mean for my pay, in practice?

Inside IR35 usually means being paid through an umbrella company on PAYE or on an agency payroll. The rate quoted for an umbrella is an assignment rate, so employer National Insurance, the apprenticeship levy, the umbrella margin and your holiday pay all come out of it before your gross pay is worked out. Ask for a written illustration on that exact rate.

How do I challenge an IR35 determination?

Is an umbrella company the same as being self-employed?

No. An umbrella company employs you, so you are an employee of the umbrella on PAYE, with statutory rights against the umbrella rather than against the end client. You are not self-employed and you are not running a business. Your own limited company is the closer thing to that, and it is only in play where the engagement has been determined outside IR35.

What is the difference between an assignment rate and a PAYE rate?

An assignment rate is what the agency pays the umbrella, and employment costs sit inside it. A PAYE rate is gross pay before your own deductions, with employment costs carried separately by the agency. The two are not comparable as quoted, which is why a lower PAYE rate and a higher assignment rate can describe exactly the same money.

Which umbrella arrangements should I refuse outright?

Can an experienced contractor get help with this without joining a training programme?

Yes. Someone weighing an inside offer against an outside one does not need a course. What helps is a written illustration from each payer put side by side, the working practices read against the determination, and the CV re-cut so it reads as delivery. Campus4tech offers standalone job support with no training attached, and we continue working with candidates until they are successfully placed.

Summary

Two sentences carry most of this article. Your IR35 status is decided by somebody else, and the rate you were quoted for an umbrella engagement is not your pay.

Take them in that order. On engagements with medium and large clients, the end client determines status, has to take reasonable care over it, and has to give you a written statement with reasons. Your job is to get that statement, read it against what you were actually told about hours, reporting lines and how work reaches you, and notice the gap if there is one. Where the client qualifies as small, the decision and the risk come back to your own company, which is a different kind of engagement and deserves a contract review rather than optimism. The tests behind any determination are substitution, control and mutuality of obligation, with financial risk, equipment, being part and parcel of the organisation and exclusivity tipping the borderline cases. And the reality of the engagement outranks the wording of the contract every time.

Then the money. An inside engagement paid through an umbrella quotes you an assignment rate, and employer National Insurance, the apprenticeship levy, the umbrella margin and your own holiday pay come out of it before your gross pay is even calculated. On the illustration used earlier, a £600 assignment rate and a £500 outside rate came out about £17 a day apart rather than £100, and the two remaining figures were still taxed under different regimes. So the only comparison worth making runs through two written illustrations from the actual payers, on the actual rate, with every line labelled and the arithmetic reconciling from the top to your bank account. Ask for those before you sign, ask every umbrella on the list, and treat an unusually good net figure as a warning rather than a win. The general framework for weighing whole packages against each other, rather than headline numbers, is in the guide to putting two offers side by side.

One last thing worth knowing if you have ever contracted in the United States, or are thinking of it. The same underlying question turns up there, but the machinery is entirely different: three classifications rather than two, decided by facts rather than by the client, with an entity of your own in the middle. That version is set out in the comparison of US contract classifications, and reading the two together is the fastest way to see what is genuinely a UK rule and what is just how contracting works everywhere.

None of this needs a course. It needs the right four questions asked in the first call, two documents you are entitled to, and somebody to read the illustration with you. If you want to see what is currently live, start with the UK contract and permanent vacancies on our jobs board, or look at job support that runs without a training enrolment if what you need is help with the CV, the rate conversation and the submissions rather than anything taught.

At Campus4tech we spend a good deal of time on exactly this conversation with experienced technology professionals: reading a determination against what the interviewer described, putting two take home illustrations side by side so the rates finally mean something, re-cutting the CV into delivery language with an availability date on the header, and then handling the submissions and the interview preparation. Experienced people rarely need to be taught anything, so job support runs on its own with no training attached, and we continue working with candidates until they are successfully placed. If you are weighing an inside offer against an outside one, tell us which two you are deciding between and we will work through the arithmetic with you before you answer the agency. Nothing here is tax or legal advice, so take your own contract and your own figures to a qualified accountant, and check current rates and thresholds on GOV.UK.

Written by

SK Chauhan

Founder

Works across recruitment delivery and placement strategy at Campus4tech.