Navigating Taxation Changes: Impact on Accounting Practices and Strategies in the UK

A Complete Guide by Direct Assist – Chartered Certified Accountants

Published: 1 December 2025

If you’re self-employed in the UK—especially as a freelancer or contractor—you’ve probably heard the term IR35. It’s one of the most confusing areas of UK tax law, and it causes serious concern for individuals working through limited companies.

But here’s the good news: IR35 does NOT apply to sole traders.

In this guide by Direct Assist Accountants, we explain what IR35 is, why sole traders are exempt, and what rules you do still need to follow to stay compliant.

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Official guidance on HMRC IR35 rules

1.What Is IR35?

IR35—also known as the off-payroll working rules—was created by HMRC to prevent “disguised employment.”
This happens when someone works like an employee but uses a limited company to pay less tax.

HMRC determines IR35 status by assessing:

• How much control the contractor has over their work

• Whether they can send a substitute

• Whether there is mutual obligation for ongoing work

If you are inside IR35, tax and National Insurance are taken through PAYE.
If you are outside IR35, you’re genuinely self-employed

Learn more about the latest changes in UK tax policy at Direct Assist Accountant

2. Why IR35 Does NOT Apply to Sole Traders

IR35 only applies where there are three parties involved:

1. The worker

2. The intermediary (usually a limited company)

3. The client

Sole traders do not operate through an intermediary—meaning:
✔ You engage directly with your clients
✔ There’s no company acting as the middleman
✔ You are clearly self-employed

Therefore, sole traders fall completely outside IR35 legislation.

See our Sole Trader Accounting Services

3. Employment Status Checks Still Matter

Even though IR35 doesn’t apply, HMRC can still review your employment status to ensure you are genuinely self-employed.

HMRC may assess:

• Who controls your work

• Whether you provide your own tools

• Whether you carry financial risk

• If you work for multiple clients

• Whether you can provide a substitute

If HMRC finds the relationship resembles employment, the client could owe backdated tax—and you may have to pay via PAYE.

(Outbound link) ➝ Learn more about HMRC employment status checks

4. How Sole Traders Can Protect Their Self-Employed Status

To avoid being classed as an employee, sole traders should:
✔ Maintain control over how and when you work
✔ Work for multiple clients
✔ Avoid long-term exclusivity
✔ Provide your own equipment
✔ Keep clear written contracts
✔ Include substitution clauses where possible

These steps help prove your independence and reduce HMRC scrutiny.

5. Sole Trader vs Limited Company and IR35

While sole traders avoid IR35 entirely, many eventually incorporate a limited company.
Once you do this, IR35 becomes relevant.

Limited company contractors typically receive:

• A small salary

• Dividends

• Company profits taxed separately

This structure increases tax efficiency—but also brings compliance obligations.

If you’re considering transitioning from sole trader to limited company, the specialist team at Direct Assist Accountants can help you understand IR35 risks, tax planning, and optimal business structure.

Compare Sole Trader vs Limited Company

6. Sole Trader Accounting With Direct Assist Accountants

Working as a sole trader is one of the easiest ways to run a business. You keep full control, the setup is simple, and bookkeeping is straightforward.

At Direct Assist Accountants, we offer:

• A dedicated accountant

• HMRC registration support

• Complete bookkeeping guidance

• Accurate tax return preparation

• Ongoing business advice

• Same-day response guarantee

If you decide to operate as a limited company later, we can manage the transition and ensure you stay compliant with IR35 and other regulations.

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If your overseas entity owns or plans to acquire UK property, don’t risk delays, fines, or transaction issues. Contact Direct Assist Accountants today to ensure your ROE registration is handled efficiently and accurately.

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