Every interim engagement runs into this question sooner or later. Here's what it actually means, without the jargon.
Inside IR35
Looks like employment. The interim pays tax and National Insurance broadly as an employee would.
Outside IR35
Genuinely independent, with real control over how the work gets done, and can be more tax-efficient as a result.
The basics
What it isA tax rule that asks one question: is a contractor genuinely running their own business, or working like an employee while billing through a limited company? If it's really the latter, HMRC says they should pay tax roughly like an employee would, regardless of how the contract is worded.
Inside vs outsideCovered above; the difference comes down to how much genuine independence the engagement actually has, not how the contract is worded.
Who decidesFor medium and large UK businesses, it's the client who must determine the status and issue a written Status Determination Statement before the engagement is paid, not the interim, and not us. Smaller businesses are exempt from this duty; a company counts as "small" if it meets at least two of: turnover under £10.2m, balance sheet under £5.1m, or fewer than 50 employees, in which case the interim's own company determines status instead.
What HMRC actually looks at
ControlHow much say does the client have over how, when and where the work gets done, versus the interim managing that themselves?
SubstitutionCould the interim, in principle, send a suitably qualified substitute to do the work instead of them personally? A genuine right of substitution points toward "outside."
Mutuality of obligationIs the client obliged to keep offering work, and the interim obliged to accept it, the way an employment relationship works, or is each engagement its own standalone arrangement?
Most senior interim mandates, genuinely time-bound, outcome-led, with real autonomy over how the work gets done, sit more naturally toward "outside."
But every engagement is assessed on its own facts, not on the job title, and clients are expected to take reasonable care over the decision rather than defaulting one way to avoid the work of assessing it properly.
Fractional work, genuinely serving multiple concurrent clients, often points toward "outside" more clearly still, since working for several clients at once cuts directly against the control and mutuality of obligation tests above.
This is a plain-English guide, not tax or legal advice. IR35 status depends on the specific facts of each engagement, and the small-business thresholds noted above are periodically revised by HMRC; always confirm the current position with a qualified accountant or employment status specialist before an assignment begins.