IR35 has been around since 2000, and contractors are still getting it spectacularly wrong. Not through malice or deliberate evasion, but through genuine misunderstanding of what the rules actually say and how HMRC applies them.

Some myths are harmless. They don't affect your tax position even if you believe them. Others are dangerous. Acting on false information can put you inside IR35 when you thought you were outside, or make you confident you're compliant when you're actually at serious risk of investigation.

The problem is that IR35 myths sound plausible. They're repeated in contractor forums, passed between colleagues, and sometimes even perpetuated by people who should know better. Separating what's actually true from what contractors want to be true matters if you're going to structure your affairs properly.

Here are the most common IR35 misconceptions, why they're wrong, and what the reality actually looks like.

IR35 Myths Debunked: What Contractors Get Wrong

Here are the most common IR35 misconceptions, why they're wrong, and what the reality actually looks like.

Myth: Having an IR35 Compliant Contract Makes You Safe

This is probably the most dangerous misconception in contracting. Contractors pay solicitors hundreds or thousands for contracts stuffed with self-employment language, substitution clauses, and limited control provisions. They think the contract protects them.

It doesn't.

HMRC looks at how you actually work, not what your contract says. If your contract claims you have complete autonomy but emails show your client directing your work daily, HMRC will ignore the contract.

Tribunals have repeatedly ruled that established working practices trump contractual terms. In case after case, contractors have lost appeals despite having contracts that looked perfect on paper. The judge examines the reality of the working relationship, and when that contradicts the contract, reality wins.

The reality

Your contract is evidence of what both parties intended, nothing more. If your actual working arrangements match what the contract describes, it supports your position. If they don't, the contract becomes irrelevant or even harmful because it proves you knew what proper arrangements looked like but ignored them.

Good contracts are necessary but not sufficient. You need the contract and the working practices to align. One without the other achieves nothing.

Myth: Working Through a Limited Company Means You're Self-Employed

Many contractors think the corporate structure itself determines their tax treatment. If you're operating through a limited company, you must be self-employed for tax purposes, right?

Wrong. IR35 exists precisely because this isn't true.

You can work through a limited company and still be deemed an employee for tax purposes. The company is just a legal wrapper. HMRC looks through the corporate veil at the underlying relationship between you and the end client.

Thousands of contractors work through limited companies whilst being inside IR35. They're companies, but they're paying tax as if they were employees. The structure doesn't protect you.

The reality

Your limited company is a tax-efficient vehicle when you're genuinely self-employed. When you're actually an employee in all but name, it becomes a tax avoidance structure in HMRC's eyes. That's what IR35 addresses.

The question isn't "do you have a limited company?" It's "are you genuinely in business on your own account, or are you effectively an employee?" The corporate structure doesn't answer that question.

Myth: If the Client Says You're Outside IR35, You're Safe

Under the off-payroll working rules, medium and large clients determine your IR35 status. Some contractors interpret this to mean the client's determination is final. If they say you're outside, you are.

Not quite. The client determines your status, but they can get it wrong. If they've made an incorrect determination and HMRC investigates, the fact the client said you were outside doesn't protect you if the evidence says otherwise.

The client carries the liability if their determination was wrong, true. But that doesn't mean you escape all consequences. You might need to repay net amounts you received that should have been taxed. You'll certainly face disruption and stress during an investigation.

The reality

Client determinations are binding for operational purposes. If they say you're inside, you operate inside. If they say you're outside, you can operate outside. But their determination isn't a guarantee of correctness.

If you're determined outside IR35 but your working practices clearly suggest you're inside, you're in a vulnerable position. The client might be wrong. HMRC might investigate. Having a client determination provides process and liability protection, not certainty.

Myth: A Substitution Clause Makes You Outside IR35

Contractors love substitution clauses. They think having the right to send a substitute automatically makes them outside IR35. So they ensure every contract includes substitution rights, and they assume they're protected.

Tribunals have demolished this myth repeatedly. A substitution clause that's never used and was never genuinely going to be used is worthless. Courts call these "sham" clauses and disregard them entirely.

What matters isn't having substitution words in your contract. It's having a genuine, practical right to substitute that you could actually exercise if needed.

The reality

Genuine substitution requires several elements. The right must be unrestricted—you can send a substitute without client approval, though they must be suitably qualified. You must bear the cost of the substitute. The arrangement must be realistic, not just theoretical. And ideally, there should be evidence you've discussed it with the client and identified someone who could substitute.

If your contract says substitution is allowed but everyone involved knows you'll never use it and the client would refuse anyone you sent, the clause is meaningless. HMRC will see straight through it.

Myth: Working From Home Proves You're Outside IR35

Many contractors believe location flexibility demonstrates self-employment. If you can work from home, you must be outside IR35.

This confuses evidence with conclusion. Working from home can support an outside IR35 position, but it's not determinative. Thousands of employees work from home. Location alone doesn't determine employment status.

What matters is control. Do you work from home because you choose to, or because that's where you're expected to work? Can you decide day by day, or do you need permission? Is home working your decision or the client's policy?

The reality

Location flexibility supports outside IR35 status when it demonstrates your control over how you work. If you genuinely choose when and where to work based on what suits you, that's evidence of self-employment.

But if everyone works from home because of company policy, or if you're working from home because the client has no office space for you, that doesn't demonstrate autonomy. Context matters.

And if you're working from home but still under close supervision via video calls, following rigid hours, and having your work directed just as if you were in an office, location is irrelevant to your status.

Myth: Using Your Own Equipment Makes You Outside IR35

"I use my own laptop, so I'm outside IR35" is something HMRC hears constantly. Contractors think providing your own equipment is strong evidence of self-employment.

It's weak evidence at best. Many employees use their own devices for work. BYOD policies are common. Having your own laptop doesn't prove you're running a business.

HMRC looks for substantial business equipment and significant financial risk. A £1,000 laptop you'd own anyway isn't substantial. Specialist equipment, vehicles, expensive software licenses, machinery—these matter more.

The reality

Equipment is one factor among many. If you provide substantial equipment that employees wouldn't normally provide, that supports self-employment. But a basic laptop and home broadband don't move the needle.

In sectors like construction, providing your own tools is standard and does support outside IR35 status. In IT, using your own laptop is common for everyone and proves little.

The question is whether you're taking on costs and risks that employees don't take on. Minor personal equipment doesn't meet that threshold.

Myth: IR35 Only Applies If You Work for One Client

Some contractors believe you're automatically outside IR35 if you have multiple clients. The logic is that employees work for one employer, so having several clients proves self-employment.

Having multiple clients is helpful evidence, but it's not a silver bullet. You can work for multiple clients and still be inside IR35 on each contract individually.

Each engagement is assessed separately. If you're working for three different clients but behaving like an employee at each one, you're inside IR35 on all three contracts.

The reality

Multiple clients demonstrates you're not economically dependent on one source of income. That supports a genuine business operation. But it doesn't override the fundamental tests of control, substitution, and mutuality. What matters more is how you work at each client. Do they control your working methods? Can you substitute? Are you integrated into their organisation? These questions apply regardless of how many other clients you have. The strongest position is multiple clients where you're genuinely self-employed at each one. Multiple clients where you're working like an employee everywhere doesn't protect you.

Myth: Having Professional Indemnity Insurance Proves Outside IR35

Insurance is another factor contractors overvalue. They assume having professional indemnity insurance, or public liability insurance, proves they're outside IR35 because employees don't have insurance.

Insurance supports self-employment, but it's not proof of it. Many employed professionals have their own insurance. And HMRC knows contractors buy insurance specifically to tick IR35 boxes, not because they genuinely need it.

The reality

Appropriate insurance for your sector and genuine business risks you face is good supporting evidence. But insurance alone doesn't determine status.

If you're genuinely running a business with liability exposure, having insurance makes sense and demonstrates business thinking. If you've bought the cheapest policy you could find just to have insurance on paper, it carries less weight.

Insurance is one piece of evidence in the overall picture. Useful, but not decisive.

Myth: Short-Term Contracts Can't Be Inside IR35

Some contractors believe that short contracts—anything under six months—are automatically outside IR35. The reasoning is that permanent employment means long-term relationships, so short-term work must be contracting.

Contract length is irrelevant to IR35 status. You can be inside IR35 on a one-week contract. You can be outside IR35 on a three-year contract.

What matters is the nature of the relationship during the contract period, not its length.

The reality

Short-term contracts can support outside IR35 status because they demonstrate you're moving between projects rather than in ongoing employment. But the contract itself could still be assessed as inside IR35 based on how you work during that period.

A two-week contract where you're integrated into the client's team, working under their direction, using their equipment, and following their processes is inside IR35. The fact it only lasted two weeks doesn't change the employment nature of the relationship.

Conversely, a two-year contract where you're genuinely autonomous, controlling your methods, and delivering defined outcomes could be outside IR35. Length is about mutuality of obligation and ongoing relationships, not about automatic status.

Myth: HMRC Won't Investigate Small Contractors

Many contractors, particularly those with modest incomes, believe they're too small for HMRC to bother with. "They only go after the big earners" is a common refrain.

This gives false security. HMRC investigates contractors at all income levels. Whilst it's true they target high-value cases for investigation—there's more tax at stake—small contractors get caught in compliance sweeps and random checks too.

More importantly, if your affairs are blatantly non-compliant, the investigation risk exists at any income level. HMRC's algorithms flag suspicious patterns regardless of the amounts involved.

The reality:

You're at higher investigation risk if you're earning £150,000 than if you're earning £40,000. The potential tax recovery justifies the investigation costs. But that doesn't mean you're safe earning less.

HMRC also investigates based on information they receive. If someone tips them off, your income level is irrelevant. If you're in a sector they're targeting, everyone gets swept up.

Assuming you're safe because your numbers are modest is dangerous. Compliance matters at every income level.

Myth: You Can Negotiate Your IR35 Status

This misconception particularly affects contractors under the old rules or working with small companies. They think IR35 status is negotiable—something you can discuss with the client and agree between you.

IR35 status isn't a matter of agreement. It's a matter of fact. The relationship either meets the tests for employment or it doesn't. You can't negotiate your way out of status that the facts support.

The reality:

You can negotiate your working arrangements. You can discuss contract terms, agree on flexibility, establish substitution rights, and structure the relationship to be genuinely self-employed.

But once those arrangements are in place and you're working, the status is what the status is. You can't have an employment-type relationship and agree with the client to call it self-employment for tax purposes. That's not negotiation, that's tax evasion.

What you can negotiate is how you'll work. From that, status follows. But the status itself isn't up for negotiation it's determined by the facts.

Myth: If You've Been Outside IR35 for Years, You're Safe

Contractors who've operated outside IR35 for years sometimes assume this proves their status is correct. Surely if HMRC had a problem, they'd have raised it by now?

Past practice doesn't guarantee future immunity. HMRC can investigate historical years. More importantly, the fact you've been operating outside IR35 doesn't mean you were correct to do so.

If your working practices have always suggested inside IR35 but you've been treating yourself as outside, you're not protected just because you've got away with it so far.

The reality:

HMRC can investigate up to four years back as standard, six years if they think you were careless, and twenty years if they suspect deliberate avoidance. Your historical treatment doesn't prevent investigation.

If you've been operating outside IR35 and your arrangements genuinely support that status, you're probably fine. But longevity doesn't create protection. You need the substance, not just the history.

And if your working practices have changed over time—you've become more integrated into a client, you've lost autonomy, you've worked at one place longer than intended—your status might have changed even if it was correct years ago.

Myth: Contractors Are Automatically Self-Employed

This seems obvious, but it's worth stating clearly because some contractors operate under a fundamental misunderstanding. They think "contractor" is a tax status.

It's not. Contractor is a description of how you find work and structure relationships. But contractors can be employed, self-employed, or somewhere in between for tax purposes.

Many contractors are legitimately self-employed. Many are not. The title doesn't determine the reality.

The reality

You're self-employed for tax purposes if you meet the tests for self-employment. You control your work, you take business risks, you're not integrated into someone else's organisation, you have autonomy.

If you don't meet those tests, you're employed for tax purposes regardless of calling yourself a contractor, working through an agency, or operating through a limited company.

The word "contractor" describes your working pattern, not your tax status. Your tax status is determined by the substance of your relationships.

Myth: You Only Pay Tax on What You Take Out of Your Company

Some contractors think their limited company's profits are only taxed when extracted. So as long as you leave money in the company, you don't pay personal tax on it.

When you're outside IR35, this is broadly correct. Company profits are taxed at corporation tax rates. You pay personal tax on salary and dividends when you take them.

When you're inside IR35, it's completely wrong. The deemed payment rules mean you're taxed on the income as if you received it as salary, even if it stays in the company.

The reality

Outside IR35, you control when and how you extract money, which gives tax planning flexibility. You pay corporation tax on profits, then personal tax when you take dividends.

Inside IR35, the money is deemed to be employment income. You're taxed on it through PAYE immediately. It doesn't matter if you physically take the money out or leave it in the company—the tax is due based on the deemed payment calculation.

This catches contractors out. They think they can leave money in their company to defer tax, then discover they owe personal tax on income they haven't actually received. The deemed payment creates a tax charge regardless of actual extraction.

Myth: IR35 Is Optional If You Structure Things Carefully

Perhaps the most dangerous myth is that IR35 can be avoided through clever structuring. Contractors think if they set up contracts correctly, use the right clauses, and maintain certain formalities, they can work like employees whilst avoiding employment tax.

This is fundamentally misunderstanding what IR35 does. It's anti-avoidance legislation designed to catch exactly this behaviour.

You can't avoid IR35 through clever structuring. You can only operate outside IR35 if you're genuinely self-employed. The structure should reflect reality, not create false appearances.

The reality

Proper structuring matters when you're genuinely self-employed. Good contracts, clear working practices, and appropriate business operations support your position. This isn't avoidance, it's making sure reality is properly documented.

But if the underlying relationship is employment, no amount of clever structuring changes that. Substitution clauses, limited control provisions, and business-like contracts don't transform employment into self-employment when the working practices remain employee-like.

HMRC and tribunals look through structures at the substance beneath. If you're working like an employee, you'll be taxed like one regardless of your contracts, your corporate structure, or your terminology.

Myth: Taking Business Risks Automatically Means Outside IR35

Contractors sometimes believe that taking any business risk proves self-employment. They point to unpaid gaps between contracts, or accountancy fees, or the cost of finding work as evidence they're taking risks employees don't take.

These general business risks matter, but they're not the specific risks that determine IR35 status. HMRC looks for financial risk in the engagement itself.

The reality

The relevant risk is the possibility of making a loss on a specific contract. If you agree to deliver a defined outcome for a fixed price, and it takes longer or costs more than expected, that's your problem. That's genuine business risk.

If you invoice for every hour you work at an agreed rate, there's no outcome risk. You can't make a loss. If the project overruns, you earn more, not less. That's not taking business risk in the engagement.

The general risks of being a contractor—finding work, paying your own expenses, having gaps between contracts—apply to any self-employed person. They're necessary but not sufficient to prove outside IR35 status.

Myth: Project-Based Work Automatically Means Outside IR35

Contractors often believe that if they're working on a "project" they must be outside IR35. Projects are temporary, employees are permanent, therefore projects equal self-employment.

What counts as a project matters. A three-year engagement doing business-as-usual work isn't a project just because it has an end date. True project work has defined deliverables, clear boundaries, and distinct outcomes.

The reality

Genuine project-based work supports outside IR35 status. You're engaged to deliver a specific outcome, you control how you achieve it, when the project ends the relationship ends with no expectation of continuation.

But many engagements called "projects" are really just fixed-term employment. You're working like permanent staff, just with an agreed end date. That's not project work, that's temporary employment.

The test isn't "does this have an end date?" It's "am I providing discrete services to achieve a defined outcome, or am I providing labour as part of the client's workforce?" Projects are about the nature of the work, not the duration.

Where These Myths Come From

Understanding why these misconceptions persist helps you avoid falling for them.

Many myths are wishful thinking. Contractors want to be outside IR35 because the tax is better. They seize on factors that support outside status and overweight their importance while ignoring factors pointing inside.

Some myths come from outdated information. IR35 has evolved since 2000. What worked fifteen years ago might not work now. Case law develops, HMRC refines its approach, and old guidance becomes misleading.

Other myths spread through contractor communities. Someone misunderstands a rule, shares it confidently, and it gets repeated until it becomes accepted wisdom. The fact everyone believes it doesn't make it true.

And some myths are deliberately spread by parties with conflicts of interest. Umbrella companies minimising IR35 concerns to win business. Agencies oversimplifying rules. Even some accountants giving optimistic advice because contractors don't want to hear harsh truths.

Getting Past the Myths

Believing IR35 myths doesn't just create confusion. It creates real risk. You might operate outside IR35 when you should be inside, facing potential tax bills and investigations. You might make decisions based on false premises.

Start by questioning what you think you know. Where did you hear it? Is the source credible? Does it align with HMRC guidance and case law? Or is it just something that gets repeated in forums?

Read actual HMRC guidance, not interpretations of it. Look at tribunal cases and see what judges actually ruled. Understand the reasoning, not just the outcomes.

Get professional advice from IR35 specialists who'll tell you what you need to hear, not what you want to hear. Good advisers correct misconceptions. They don't reinforce them for commercial gain.

Test your assumptions against evidence. Don't just assume your substitution clause works—prove you could actually use it. Don't assume you're outside IR35 because you work from home—examine all the factors together.

The Dangerous Comfort of Myths

IR35 myths are comforting. They make contracting seem simpler than it is. They suggest easy solutions to complex questions. They let you believe you're compliant without much effort.

That comfort is dangerous. IR35 isn't simple. There aren't easy solutions. Compliance takes thought and proper structuring.

Operating on false premises doesn't just risk getting your tax status wrong. It prevents you from properly addressing the real issues. If you think having a contract makes you safe, you won't focus on working practices. If you think using your own laptop proves self-employment, you won't address the control issues in your role. Strip away the myths and deal with reality. Your IR35 status depends on how you actually work. Control, substitution, mutuality of obligation, and whether you're genuinely in business on your own account. These are the factors that matter.

Everything else, the contracts, the insurance, the equipment, the corporate structure, supports your position if the fundamentals are right. But none of it overrides the fundamentals when they're wrong.

Understand what actually determines IR35 status. Structure your affairs accordingly. Don't rely on myths, shortcuts, or wishful thinking. The tax at stake is too significant to gamble on misconceptions.