Glossary
What is ir35?
IR35 is UK tax legislation that determines whether a contractor working through their own company should be taxed as an employee of the client for a given engagement.
Since the off-payroll working rules were extended to medium and large private-sector clients, the client, not the contractor, usually decides the employment status of each engagement and carries the liability if it is wrong. An engagement is "inside IR35" if the working arrangement looks like employment and "outside" if it looks like a genuine business-to-business service.
For technology hiring the practical effect is that outside-IR35 contracts attract a wider pool of senior contractors at lower day rates, while inside-IR35 contracts are simpler for the client but cost more to attract the same person.
What does inside IR35 mean for a day rate?
The contractor is taxed like an employee, with tax and National Insurance deducted at source, so their take-home falls for the same day rate. Contractors therefore ask for a higher rate for inside-IR35 work, or decline it.