The world of contracting in the UK has changed significantly over the past decade, and one of the most critical developments has been the introduction and tightening of IR35 legislation. Whether you're an IT consultant, management consultant, or business strategist, understanding your IR35 status is crucial.

But does IR35 apply to consultants? The short answer is: yes, it can. And if you're working through a limited company or as a freelancer, it's essential to know how and when these rules apply.

In this in-depth guide, we explain how IR35 affects consultants in the UK, what you need to look out for, and how to ensure you stay compliant while protecting your income and reputation.

What Is IR35?

IR35, officially known as the off-payroll working rules, is UK tax legislation introduced to prevent tax avoidance by individuals supplying services via an intermediary (usually a limited company), who would otherwise be considered employees if engaged directly.

The goal of IR35 is to ensure that so-called "disguised employees"—contractors who work like full-time employees but invoice through a company—pay similar taxes to employees.

If caught by IR35 (i.e. operating inside IR35), the contractor must pay income tax and National Insurance Contributions (NICs) as if they were employed.

Does IR35 Apply to Consultants?

Yes, IR35 does apply to consultants—but only under certain circumstances. The key factor is how your working relationship with the client is structured.

If you:

• Work through your own limited company (also known as a personal service company or PSC)
• Provide services to another business
• Work in a role that resembles employment (not genuine consultancy or independent contracting)

...then IR35 may apply to you.

Examples of consultants potentially affected:

• IT consultants delivering long-term projects on-site
• Management consultants embedded in client teams
• Marketing consultants taking direction from in-house managers

On the other hand, if you are:

• Self-employed without a limited company
• Running a genuine consultancy business with multiple clients
• Working on fixed outcomes without supervision

...you may fall outside IR35—but it still depends on contract terms and working practices.

IR35 Status: Inside vs Outside Explained

Understanding whether you're inside or outside IR35 depends on both the written contract and actual working conditions. HMRC uses several key tests to determine status:

✅ Supervision, Direction, and Control (SDC)

Do you have control over how, when, and where the work is done? If the client directs your daily tasks, you're more likely inside IR35.

✅ Substitution

Can you send a substitute to complete the work? If the answer is no, this may suggest you're an employee in disguise.

✅ Mutuality of Obligation (MOO)

Is the client obliged to offer work, and are you obliged to accept it? A yes on both sides indicates an employment relationship.

✅ Equipment and Integration

Do you use your own tools? Are you integrated into the team, using their equipment and email address? These can indicate IR35 applicability.

The Impact of IR35 on Consultants

🔴 If You’re Inside IR35:

• Your income is taxed at source like an employee (PAYE)
• You lose access to dividend tax savings
• You may have less take-home pay
• You don’t gain full employment benefits (e.g., sick pay, redundancy pay)

🟢 If You’re Outside IR35:

• You retain tax advantages of running a limited company
• You can pay yourself via dividends and salary
• You have more control over working arrangements

IR35 status has direct financial implications, which is why consultants must be proactive in determining and defending their position.

Who Determines IR35 Status?

As of April 2021, the rules changed for medium and large private sector clients in the UK:

• If you're working with a medium/large private company or public sector organisation, the client is responsible for determining your IR35 status.
• If you're working with a small private company, you (the contractor) are still responsible for determining your status.

Clients must issue a Status Determination Statement (SDS) outlining their reasoning. You have the right to dispute this if you believe it's inaccurate.

How Consultants Can Stay IR35 Compliant

Here’s how to manage your consulting business with confidence:

1. Have a Properly Worded Contract

Work with legal or payroll professionals to ensure your contract reflects an independent relationship:

• Include a valid substitution clause
• Define a clear project scope and deliverables
• Avoid language that implies supervision or employment

2. Align Your Working Practices

Even if your contract is solid, how you actually work matters:

• Maintain autonomy
• Work off-site when possible
• Use your own equipment
• Avoid appearing as part of the client’s organisation

3. Use an IR35 Assessment Tool

Tools like HMRC’s CEST (Check Employment Status for Tax) tool can provide guidance, but it’s not foolproof. Specialist payroll providers or legal experts offer more reliable assessments.

4. Consider an Umbrella Company if Inside IR35

If you're caught inside IR35, PAYE umbrella services can help simplify payroll, ensure tax compliance, and give you employee rights.

5. Seek Professional Advice

Don’t rely on assumptions. Work with a qualified accountant, IR35 specialist, or payroll company experienced in your industry.

Case Study: A UK IT Consultant Facing IR35 Review

David, an IT consultant in London, had worked with the same financial services client for over 18 months. He:

• Worked on-site daily
• Used the client’s equipment
• Reported to the client’s project manager

When IR35 reform came into force, the client reviewed his contract and deemed him inside IR35. David’s take-home pay dropped by nearly 20%, and he decided to work through a PAYE umbrella company to stay compliant without running his own payroll.

This example highlights the real-world consequences of IR35 for consultants.

What to Do If You're Deemed Inside IR35

• Review the client’s SDS and gather evidence to challenge it if needed
• Speak to your agency and client about role clarification
• If necessary, switch to an umbrella payroll solution to ensure tax is correctly handled

Final Thoughts: Does IR35 Apply to Consultants?

Yes—IR35 applies to consultants if your working relationship mimics that of an employee rather than an independent business. Whether you’re in IT, finance, marketing, or construction, understanding and managing your IR35 status is now an essential part of working as a consultant in the UK.

With HMRC tightening enforcement and end clients becoming more cautious, it’s never been more important to:

• Get your contracts reviewed
• Understand your rights and responsibilities
• Consider professional payroll support if needed

Need help with IR35 assessments or payroll solutions? The Infinity Group specialises in supporting UK consultants with compliant, expert-backed services. Contact us today to find out more.