If you are caught by the off-payroll IR35 rules, you may decide that there is no point keeping your limited company active. However, this isn’t necessarily the case, as a leading accountant explains.
What happens if your contract is deemed to be inside IR35?
Since April 2021, for private sector engagements with medium or large clients (not defined as small under the updated thresholds), the client is responsible for determining whether your contract falls within IR35.
The client shares the status determination statement with other parties in the supply chain, and is expected to take reasonable care in making this decision.
If you disagree with this decision, you can complain to your client; however, controversially, there is no independent right of appeal.
The fee-payer is responsible for deducting income tax and NICs from your contract income.
And if they don’t pay these liabilities, there is a ‘transfer of debt’ provision in the legislation, which means another party in the supply chain may end up facing any unpaid tax bills.
The threat of this liability, together with the many other difficulties with understanding how to operate the rules, is thought to be behind the practice of cautious or blanket inside-IR35 determinations in many sectors following the rollout.
Recent increases to small company thresholds (turnover to £15m, balance sheet to £7.5m from April 2025 onwards) mean more clients now qualify as small, shifting status determination back to contractors in those cases.
Should you keep your limited company if caught by the off-payroll rules?
We asked Chris James, head of accounting at JSA, why you may consider working via your limited company, even if your current contract falls within the scope of the legislation. (Updated by the IT Contracting team in September 2025)
Do you have inside and outside contracts?
For some contractors, it may be more practical to work this way, especially if they are doing a mix of work, with some contracts inside IR35 and others outside.
They would need to work out if they are better off remaining limited, but if at least 50% of income is coming from ‘outside IR35’ contracts, then it will most likely be worth their while staying limited.
What are your longer-term plans?
It will also depend on a contractor’s longer-term plans.
If they are considering retraining to undertake roles that would not be considered ‘caught’ by IR35, it would make sense to keep the limited company.
There is a cost when closing down a limited company, so if working inside IR35 is temporary, the short-term tax consequences would not be such a burden.
Too much uncertainty to make a decision
Another example of where a contractor might continue to use a limited company is where there is potential for the end user to change their mind about categorising a particular role as ‘inside IR35’.
The rules continue to frustrate clients and recruiters, and different companies will interpret employment status differently.
If an end user decides that a particular role falls within IR35, but there is a chance they might change their mind.
Or if the small company exemption now applies under the updated thresholds, contractors are probably better off ‘sitting tight’.
Keep hold of the limited company, accept the short-term tax consequences, and review in a few months’ time if the situation isn’t resolving.
Lots of factors to weigh up
The final point concerns the kudos of being a limited company.
Some contractors just like this way of working and will prefer not to change.
The important thing is that they should only do this if they are fully aware of the tax consequences and have weighed up the advantages and disadvantages.
Bear in mind that successive increases in Corporation Tax and dividend tax have significantly narrowed the difference in net pay between a sole shareholder limited company director and an umbrella employee.
See this comprehensive inside IR35 (limited) vs outside IR35 (umbrella) calculator at IR35 Update.
As a result, it is definitely a good idea to get guidance from an accountant or expert who understands the rules, and to get calculations of the impact on take-home pay.
Worried about an IR35 challenge?
HMRC investigations can be expensive and time-consuming. Qdos provides expert defence and financial cover if your status is challenged.