Does Inside IR35 mean I have to close my limited company?

No. Inside IR35 does not force you to close your company. It changes how that specific contract's income is taxed. Many contractors keep the company — especially if they also have, or expect, Outside IR35 work.

Can I take dividends from Inside IR35 income?

Generally no. Inside IR35 income is usually taxed through PAYE as a deemed employment payment before it reaches you, so it cannot simply be taken out again as dividends. Doing so without advice can lead to double taxation or HMRC problems.

Is umbrella better than a limited company inside IR35?

For a simple Inside IR35 role, an umbrella is often simpler and produces a similar take-home to running the same contract through a limited company — but without the admin and accountancy costs. A limited company usually only wins where you also have Outside IR35 work.

Can I have Inside IR35 and Outside IR35 contracts at the same time?

Yes. IR35 status is assessed per engagement, not permanently attached to you. You could run an Inside IR35 contract through an umbrella and an Outside IR35 contract through your limited company at the same time.

What happens to Corporation Tax inside IR35?

If PAYE has already been applied to the deemed employment payment, the Corporation Tax treatment differs from ordinary company income, because the rules aim to avoid taxing the same income twice. The exact treatment depends on how the payment is routed, so accountant advice is important.

Can I claim expenses inside IR35?

Inside IR35 usually restricts the usefulness of many company expense claims for that contract, and ordinary commuting is generally not claimable. The broad expense flexibility of an Outside IR35 limited company is largely lost.

Do I still need an accountant if my contract is Inside IR35?

If you keep your limited company, you will still have accounts, filings and payroll responsibilities, so an accountant is usually still needed. This ongoing cost is one reason many contractors switch to an umbrella when all their work is Inside IR35.

Can I keep my company dormant while using an umbrella?

Yes. Some contractors make their company dormant while working Inside IR35 through an umbrella, then reactivate it for future Outside IR35 contracts. Speak to your accountant about the filing requirements for a dormant company.

What is a deemed employment payment?

A deemed employment payment is the amount that, under the off-payroll working rules, is treated as employment income for an Inside IR35 engagement. PAYE Income Tax and National Insurance are applied to it broadly as though you were an employee.

Who decides whether a contract is Inside IR35?

For most medium and large clients, the end client is responsible for deciding your IR35 status and issuing a Status Determination Statement. For some small company clients, the responsibility can still sit with your own company — always check the arrangement.

Can a small company client still make me responsible for IR35?

Yes. Where the end client qualifies as a small company, the responsibility for determining IR35 status and operating the rules can remain with your own limited company rather than the client. Check the client's size and who is responsible before starting.

Is Inside IR35 the same as being an employee?

Not exactly. Inside IR35 means you are taxed broadly like an employee for that engagement, but you do not automatically receive all employment rights. Status for tax and status for employment rights are assessed separately.

Does Inside IR35 affect pension contributions?

Pensions can still be useful Inside IR35, particularly employer contributions or salary sacrifice depending on the payment route. Pension contributions may reduce taxable income and remain one of the few efficient planning tools that often survives an Inside IR35 arrangement.

What happens to retained profits in my limited company?

Retained profits from previous Outside IR35 work stay in the company and can still be extracted under normal rules over time. This is one reason some contractors keep the company open even while working Inside IR35 through an umbrella.

Should I close my company if all my contracts are Inside IR35?

It depends on whether you expect future Outside IR35 work and whether the company holds retained profits. Some contractors keep the company dormant; others close it to avoid ongoing admin and fees. Take professional advice before deciding.

Can I switch back to Outside IR35 later?

Yes. Because status is per engagement, you can take an Outside IR35 contract in future and use your limited company for it, even if your current work is Inside IR35. Keeping the company available can make this easier.

How do I compare umbrella and limited company take-home pay?

Use the Money Tools UK contractor calculators to model umbrella PAYE and Inside IR35 outcomes using your day rate, working days, pension contributions and student loan plan for the 2025/26 tax year, then request a formal illustration from any umbrella you are considering.

What calculator should I use?

Start with the Contractor Tax Calculator to compare structures, then use the Umbrella Company Calculator and Inside IR35 Calculator to model specific scenarios. The Take-Home Pay Calculator is useful for checking PAYE outcomes.

Should I get accountant advice?

Yes. Contractor tax treatment depends on your contract terms, working practices, fee-payer responsibilities, company structure and personal circumstances. A qualified accountant or tax adviser can confirm the right structure and the correct Corporation Tax and PAYE treatment for your situation.

Can I Use a Limited Company Inside IR35? (2025/26)

Q: Can I use a limited company inside IR35?

Yes, you can usually keep and use a limited company for an Inside IR35 contract. However, the income from that contract is normally treated as a deemed employment payment, so PAYE Income Tax and National Insurance are applied broadly like employment income, removing most of the usual limited company tax advantages for that engagement.

By Money Tools UKLast updated 5 July 202614 min read

Contractor FinanceUK tax year 2025/26

Can you keep the company?

Usually yes

How is it taxed?

Like employment

Often simpler

Umbrella

Inside IR35 does not automatically close your company. It changes how that contract's income is taxed — and usually removes most of the limited company tax advantages for that engagement.

Many contractors assume that being Inside IR35 automatically means they cannot use their limited company. The truth is more nuanced. A contractor may still be able to keep and use a limited company, but the tax treatment of an Inside IR35 contract usually removes many of the benefits that make limited company contracting attractive.

The short version: yes, you can usually keep a limited company if a contract is Inside IR35, but the income from that specific contract is normally taxed broadly like employment income. In many cases an umbrella company may be simpler, but keeping the company may still make sense if you also have Outside IR35 work, plan to take future Outside IR35 contracts, or want to maintain the business.

This guide explains what really changes when a contract falls Inside IR35 in the 2025/26 tax year, what happens to salary, dividends, Corporation Tax, expenses and pensions, and how to decide between keeping your company and switching to an umbrella.

Open Contractor Tax Calculator Compare Umbrella vs Limited Company

The quick answer

You can usually keep your limited company if one contract is Inside IR35. However, the income from that contract will normally be treated as a deemed employment payment for tax purposes. That means PAYE Income Tax and National Insurance are applied before the money reaches the company or the contractor.

Key point

Inside IR35 does not automatically close your company. It changes how that contract income is taxed — and usually removes the salary, dividend and expense flexibility that makes a limited company attractive.

Estimate your Inside IR35 take-home pay →

What does Inside IR35 mean?

Inside IR35 means the working relationship looks more like employment than genuine independent business-to-business contracting for tax purposes. In other words, if you stripped away the limited company or agency, you would look and behave like an employee of the end client.

Status is judged on the real working arrangement, not just the words in the contract. The main factors are:

Control — how much the client dictates what you do, how, when and where.
Substitution — whether you can genuinely send a qualified substitute in your place.
Mutuality of obligation — whether the client must offer work and you must accept it.
Working practices — whether you operate like an in-house employee (fixed hours, line management, company equipment).
Client responsibility — for many engagements the end client (or fee-payer) is responsible for deciding your IR35 status.

For a full comparison of the two positions, read Inside IR35 vs Outside IR35.

Can you legally use a limited company inside IR35?

Yes — but the tax advantage is usually reduced or removed for that contract. There is no rule that forces you to close your limited company just because an engagement is Inside IR35.

The limited company may still exist, invoice and receive funds in some circumstances, but the fee-payer (usually the agency or client) may deduct PAYE Income Tax and National Insurance before the money reaches your company, depending on the arrangement. Once tax has already been applied to that deemed employment payment, there is little scope to take the same income again as dividends or to shelter it through normal company planning.

What GOV.UK says

The off-payroll working rules are designed to make sure workers who would be employees if engaged directly pay broadly the same Income Tax and National Insurance as employees — regardless of whether they work through a limited company.

What actually changes when a contract is Inside IR35?

The mechanics of how money flows change significantly. Outside IR35, your company controls the income. Inside IR35, tax is applied at source before you have the same planning options.

Outside IR35 (limited company)

Client Pays Company

Business Expenses

Corporation Tax

Salary + Dividends

Take-Home Pay

Outside IR35, the company controls the income and profits can be extracted through a tax-efficient mix of salary, dividends, pension contributions and allowable expenses.

Inside IR35 (deemed employment)

Client / Agency / Fee-payer

PAYE Income Tax & Employee NI

Deemed Employment Payment

Employment-like Net Income

Inside IR35, the fee-payer applies PAYE treatment first. The contractor receives employment-like taxed income and the usual limited company tax planning benefits are reduced.

Why the tax benefits are reduced

The main benefit of a limited company is flexibility. Outside IR35, a genuine contractor business can usually blend several levers to manage tax efficiently:

Salary
Dividends
Company expenses
Pension contributions
Retained profits

Inside IR35 restricts this because the relevant contract income is treated as employment-like income. Once PAYE has been applied at source, the money is no longer ordinary company profit that you can freely plan around — which is why an Inside IR35 limited company often produces a take-home figure close to an umbrella.

Key takeaway

Inside IR35, the tax levers that make a limited company efficient are largely switched off for that contract. The structure still exists — but the tax advantage for that engagement mostly disappears.

Compare inside vs outside IR35 take-home →

What happens to salary and dividends?

Outside IR35, contractors often take a low salary plus dividends to reduce National Insurance and use lower dividend tax rates. See Best Salary and Dividend Split for UK Contractors for how this works in practice.

Inside IR35, the relevant contract income is not normally treated the same way. The income is taxed through PAYE as a deemed employment payment, so you cannot simply take that Inside IR35 income out as dividends to avoid PAYE.

Do not take Inside IR35 income as dividends

Do not treat Inside IR35 contract income as ordinary company profit or extract it as dividends without proper advice. The income has usually already been taxed under PAYE, and mishandling it can lead to double taxation or HMRC problems.

What happens to Corporation Tax?

If PAYE has already been applied to the deemed employment payment, the Corporation Tax treatment of that income may differ from normal Outside IR35 company income. The point of the rules is to avoid the same income being taxed twice, so amounts already taxed under PAYE are generally not taxed again as company profit.

However, the detail depends on how the payment is routed, whether the fee-payer or your company operates PAYE, and how the funds are recorded in the company accounts.

Get this checked

This is an area where accountant advice is genuinely important. The interaction between deemed employment payments, PAYE and Corporation Tax is technical, and getting the treatment wrong can be costly.

What happens to expenses?

Inside IR35 usually restricts the usefulness of many company expense claims for that contract. The broad expense flexibility that makes an Outside IR35 limited company attractive is largely lost.

Outside IR35

A wider range of genuine business expenses may be relevant and can reduce taxable profit.

Inside IR35

Many expenses may not reduce your take-home in the same way, and ordinary commuting is generally not claimable.

For a full breakdown of what is and is not allowable, read What Expenses Can Contractors Claim?

What happens to pensions?

Pensions may still be useful Inside IR35, especially employer pension contributions or salary sacrifice, depending on the payment route. Pension contributions can reduce taxable income and remain one of the few efficient planning tools that often survives an Inside IR35 arrangement.

To understand how pension sacrifice cuts Income Tax and National Insurance, and how it affects thresholds, read Salary Sacrifice Explained and Adjusted Net Income Explained.

Umbrella company vs limited company inside IR35

When a contract is Inside IR35, the practical difference between running it through your limited company and using an umbrella company is often small on take-home — but very different on admin and simplicity.

Limited company inside IR35 vs umbrella company comparison for the 2025/26 UK tax year
Feature	Limited Company Inside IR35	Umbrella Company	Recommendation
Admin	Higher — accounts, filings, payroll	Low — handled for you	🟠Umbrella simpler
Tax flexibility	Very limited for the Inside IR35 contract	None — pure PAYE	🟠Little difference
PAYE deductions	Applied to the deemed employment payment	Applied to the assignment rate	🟠Broadly similar
Expenses	Mostly restricted for that contract	Very limited	🟠Both restricted
Accountancy costs	Ongoing fees still apply	Usually none	🟠Umbrella cheaper
Best for mixed contracts	Yes — keeps the company available	No — one engagement at a time	🟢Keep the company
Best for a simple Inside IR35 role	Rarely worth it	Usually simplest	🟠Use umbrella
Take-home clarity	Can be complex to reconcile	Clear PAYE payslip	🟠Umbrella clearer

🟢 Better choice🟠 Depends / little difference🔴 Usually not recommended

For the full structure comparison, see Umbrella Company vs Limited Company and How Much Does an Umbrella Company Actually Cost?

Compare umbrella vs limited company take-home

Run your day rate through the Contractor Tax Calculator to see the real take-home difference between an umbrella company and a limited company inside IR35.

Open Contractor Tax Calculator

When keeping your limited company may still make sense

Keeping your company running may still be worthwhile if:

You have Outside IR35 contracts too
You expect future Outside IR35 work
You have retained profits in the company
You have ongoing business expenses
You want to keep the company active and trading
You have multiple clients
You want pension planning flexibility

When an umbrella company may be simpler

An umbrella company may be the simpler option if:

All your current contracts are Inside IR35
No Outside IR35 work is expected
You want minimal admin
The agency or client prefers umbrella payroll
Accountancy costs outweigh the company's benefits
You want straightforward PAYE payslips

To understand every deduction on an umbrella payslip, read How Umbrella Company Take-Home Pay Really Works.

Why do agencies often encourage contractors to use umbrella companies?

When a contract is Inside IR35, many recruitment agencies actively steer contractors towards an umbrella company rather than paying a personal service company. This is usually about reducing their own risk and admin rather than maximising your take-home pay. The main reasons are:

Payroll simplicity — the umbrella runs PAYE, so the agency pays a single compliant supplier instead of operating deemed-payment payroll itself.
Compliance — using an established umbrella keeps the agency comfortable that Income Tax and NI are deducted correctly at source.
Reduced administration — timesheets, payslips, holiday pay and statutory payments are all handled by the umbrella.
Reduced IR35 risk — with PAYE applied to the assignment rate, there is little residual off-payroll exposure for the agency or client.
Quicker onboarding — umbrella payroll can usually be set up in a day or two, so you can start faster.

Agency preference is not tax advice

An agency preferring umbrella payroll is convenient for them, but it does not automatically make it the best financial choice for you. Always compare the numbers for your own situation before agreeing.

Who is the fee-payer?

The fee-payer is the organisation responsible for deducting Income Tax and National Insurance before paying an Inside IR35 contractor. In plain English, it is whoever sits directly above you in the contractual chain and pays your limited company (or umbrella).

Under the off-payroll rules, the end client decides your IR35 status, but the fee-payer is the party that actually operates PAYE on the deemed employment payment. This is usually the recruitment agency, or the end client if there is no agency in the chain.

Practical example — who deducts the tax?

You work through Your Ltd for a bank, placed by a recruitment agency. The bank (end client) assesses the role as Inside IR35. The agency pays your company, so the agency is the fee-payer. Before the money reaches Your Ltd, the agency deducts Income Tax and Employee NI and pays those to HMRC. Your company receives the net amount as a deemed employment payment.

If there were no agency and the bank paid you directly, the bank would be the fee-payer instead.

Mixed contracts: Inside IR35 and Outside IR35

This is important: a contractor can have one contract Inside IR35 and another Outside IR35 at the same time. IR35 status is assessed per engagement, not permanently attached to the contractor.

Quick example — Contractor A

Contract 1: Inside IR35, paid via an umbrella company on PAYE.
Contract 2: Outside IR35, invoiced through the limited company with salary, dividends and expenses.

Here the limited company is still genuinely useful — it handles the Outside IR35 work efficiently, while the Inside IR35 engagement runs cleanly through the umbrella. Closing the company would remove a working structure that is still earning.

Example: Inside IR35 through a limited company

These figures are illustrative only.

Day rate: £500/day
Billed days: ~220
Contract value: ~£110,000

Because the contract is Inside IR35, PAYE treatment may apply to the deemed employment payment before funds are available for normal salary or dividend planning. In practice the take-home lands close to an equivalent umbrella outcome, but you still carry company admin, filings and accountancy costs. For many contractors, that extra effort is not rewarded unless the company is also used for Outside IR35 work.

Example: Inside IR35 through an umbrella company

Using the same £500/day example, the umbrella route runs like this:

Umbrella Route (Inside IR35)

Assignment Rate (~£110,000)

Employer's National Insurance

Apprenticeship Levy

Umbrella Margin

Taxable Gross Pay

PAYE Income Tax & Employee NI

Take-Home Pay

On roughly £110,000 of assignment value, take-home is commonly in the region of 58–62% once employer costs, the umbrella margin and PAYE deductions are applied. Figures are illustrative and depend on your tax code, pension and student loan.

For a deeper breakdown of these numbers, see How Much Does an Umbrella Company Actually Cost? and Is a £500/Day Contract Worth It After Tax?

Put your own numbers in

These worked examples are illustrative. Enter your day rate to see your personal Inside IR35 and umbrella take-home pay side by side.

Open Contractor Tax Calculator

Decision guide

You may keep your limited company if:

You have Outside IR35 work
You expect future Outside IR35 work
The company has retained funds
Your accountant confirms it still makes sense

Umbrella may be simpler if:

All your work is Inside IR35
You want PAYE simplicity
Company admin is no longer worthwhile

Red flags and common mistakes

Assuming Inside IR35 means the company must close
Taking Inside IR35 income as dividends without advice
Ignoring ongoing accountancy costs
Not comparing umbrella take-home pay
Not checking the Key Information Document
Treating all contracts as having the same IR35 status
Closing the company too quickly
Ignoring retained profits and future plans

What should I do next?

If a contract has been assessed as Inside IR35, work through this short checklist before deciding whether to keep your limited company or move to an umbrella.

Your next-steps checklist

✓Check your IR35 status for each current and upcoming contract
✓Compare umbrella vs limited company take-home for the same rate
✓Review your ongoing accountancy and company running costs
✓Consider your future contracts and likely IR35 status
✓Decide whether to keep, pause or close your limited company
✓Speak to a qualified accountant if you are unsure

Work out your contractor take-home pay

Use the Money Tools UK Contractor Tax Calculator to compare limited company, umbrella and Inside IR35 outcomes before deciding what structure makes sense.

Open Contractor Tax Calculator

Compare Umbrella vs Limited Company

These guides explain how IR35 status, umbrella companies and limited company tax planning fit together.

Umbrella Company vs Limited Company — which structure pays more and when.
How Much Does an Umbrella Company Actually Cost? — every umbrella deduction explained.
Is a £500/Day Contract Worth It After Tax? — day-rate take-home compared.
How Umbrella Company Take-Home Pay Really Works — reading an umbrella payslip.
Inside IR35 vs Outside IR35 — the status rules that decide your structure.
Why Is Inside IR35 Take-Home Pay So Low? — where Inside IR35 income goes.
What Expenses Can Contractors Claim? — allowable business expenses.
Best Salary and Dividend Split for UK Contractors — limited company tax efficiency.
Umbrella vs PAYE — how umbrella and agency PAYE deductions compare.

Contractor Tax Calculator — compare limited company, umbrella and IR35 outcomes.
Umbrella Company Calculator — estimate umbrella take-home pay.
IR35 Calculator — compare inside and outside IR35 side by side.
Inside IR35 Calculator — model Inside IR35 take-home pay.
Take-Home Pay Calculator — check PAYE take-home for any salary.

Sources & references

This guide reflects official UK government and HMRC guidance on off-payroll working (IR35), employment status, umbrella companies, Corporation Tax, PAYE and National Insurance for the 2025/26 tax year.

Last updated

This article was last reviewed on 5 July 2026 and reflects UK contractor tax, off-payroll working (IR35), umbrella company, Corporation Tax and PAYE rules for the 2025/26 tax year. We refresh this guide each time HMRC publishes a material change.

Reviewed by Money Tools UK Editorial Team

This guide was reviewed for accuracy against HMRC and GOV.UK off-payroll working guidance for the 2025/26 tax year. We regularly update our contractor and tax content when thresholds, rates or status rules change.

Last reviewed: 5 July 2026

Disclaimer

Money Tools UK provides educational information and calculators only. This article is not tax, accounting, legal, employment or financial advice. Contractor tax treatment depends on contract terms, working practices, fee-payer responsibilities, company structure, expenses, pension arrangements and personal circumstances. Speak to a qualified accountant or tax adviser before making decisions.