IR35 Explained: What Freelancers Need to Know in 2025

As a freelancer, understanding the tax landscape is crucial to running a successful business. One of the most significant tax considerations for freelancers and contractors in the UK is IR35. This tax legislation can dramatically affect your income and how your work is perceived by HM Revenue & Customs (HMRC). With ongoing updates and adjustments to IR35, especially in 2025, it’s more important than ever to stay informed about its implications.

In this post, we’ll break down what IR35 is, how it affects freelancers, and what changes to expect in 2025.

What is IR35?

IR35 is a set of tax rules designed to identify individuals who are, in reality, working as employees, even though they are technically self-employed or working through their own limited company. The primary goal of IR35 is to stop “disguised employment” — where individuals work in a similar way to an employee but benefit from tax advantages of being self-employed.

The rules apply when a freelancer works through an intermediary, such as a limited company, and if the nature of their relationship with the client resembles employment, IR35 is triggered. This means that the freelancer might need to pay similar taxes to someone who is employed directly by the company.

How Does IR35 Affect Freelancers in 2025?

In 2025, the UK government is still focusing on IR35 enforcement, particularly among contractors working with medium and large-sized companies. While some changes were introduced in 2021, it’s important for freelancers to understand the impact of these rules and how they might evolve in the near future.

1. Determining IR35 Status

In 2025, the determination of whether you fall inside or outside of IR35 will be even more critical. Historically, this decision was the responsibility of the contractor. However, the burden of determining IR35 status shifted to medium and large-sized businesses in April 2021. Companies must assess whether the contractor’s role is genuinely self-employed or whether it constitutes disguised employment.

While this responsibility lies with the client, freelancers still need to ensure that they clearly communicate their working arrangements and ensure that their contracts are structured appropriately. Freelancers are advised to work with legal and financial advisors to avoid costly mistakes.

2. HMRC’s Focus on Compliance

As we move into 2025, HMRC will likely intensify its efforts to ensure that freelancers and contractors are paying the correct amount of tax. They’ve been increasingly scrutinizing businesses and contractors for signs of non-compliance. Contractors working through a limited company might find themselves under more pressure to provide documentation proving that they are genuinely self-employed.

The introduction of digital tools like the Check Employment Status for Tax (CEST) tool by HMRC is one way that the government aims to make the process more transparent. However, many freelancers still find the tool difficult to navigate and have raised concerns over its accuracy.

3. The Risk of Being Caught by IR35

If you are found to be inside IR35, you will face the same income tax and National Insurance (NI) contributions as someone employed by the company. This means you will lose the ability to claim tax-deductible expenses and your overall take-home pay could be significantly lower than expected.

Additionally, if HMRC determines that a freelancer should have been inside IR35, there could be fines and penalties, further complicating matters for businesses and contractors alike.

What Should Freelancers Do in 2025 to Stay IR35 Compliant?

To mitigate the risk of being caught by IR35, freelancers should take proactive steps to protect themselves.

1. Review Your Contracts

Ensure that your contracts clearly outline the nature of your work, highlighting any differences between your role and that of an employee. This can include clauses that indicate your independence, the absence of direction and control from the client, and your ability to work for other clients.

2. Be Transparent with Your Clients

Good communication is key. Ensure that your clients understand your status as a freelancer and that they are aware of your commitment to remain compliant with IR35.

3. Consider Working Through an Umbrella Company

If you’re uncertain about your IR35 status, you might want to consider working with an umbrella company. Umbrella companies handle your tax and national insurance contributions, which can help you avoid the risks of misclassification and ease the administrative burden on you.

4. Seek Professional Advice

Given the complexities of IR35, it’s wise to seek professional tax advice. Accountants and legal experts who specialize in IR35 can provide tailored advice and help you structure your business in a way that minimizes the risk of being caught by the legislation.

Final Thoughts

IR35 has long been a point of confusion and concern for freelancers in the UK, and with changes expected to continue in 2025, it’s essential to stay ahead of the curve. While the responsibility for determining IR35 status now lies with the client, freelancers must remain diligent in managing their contracts and working arrangements to protect their income.

For a deeper dive into IR35 and how it affects contractors, you can visit Transformify’s article on IR35. Understanding these rules and making necessary adjustments in your business can help you stay compliant and avoid costly tax implications.

By staying informed and proactive, freelancers can continue to thrive in an evolving regulatory environment.