IR35 vs 1099: A Plain-English Guide for Cross-Border Hiring
If you're hiring contract engineers in both the UK and US, you're dealing with two entirely different classification systems, and getting either wrong has real financial consequences. Here's the short version of what each one actually means.
IR35 (UK): who decides if you're "inside" or "outside"
IR35 is the UK's test for whether a contractor is genuinely self-employed ("outside IR35") or effectively working as an employee in all but name ("inside IR35"). Since 2021, for most medium and large private-sector clients, it's the hiring company that's responsible for making this determination — not the contractor's own limited company.
- Outside IR35 means the contractor operates with genuine autonomy: they control how the work gets done, can send a substitute, and aren't treated like a regular employee.
- Inside IR35 means, in practice, they're taxed similarly to an employee — income tax and National Insurance are deducted at source, even though they're technically a contractor.
Getting this determination wrong can leave the hiring company liable for backdated tax and penalties. It's not a box-ticking exercise; it affects contract structure, day rate, and how the working relationship needs to actually look in practice.
1099 (US): a different question entirely
The US doesn't have a direct IR35 equivalent, but the underlying question is similar: is this person an independent contractor (1099) or should they legally be treated as an employee (W-2)? The IRS and Department of Labor look at factors like control over how/when work is done, whether the person supplies their own tools, and whether the arrangement is project-based or ongoing and indefinite.
Misclassifying an employee as a 1099 contractor is a common and costly mistake — it can trigger back taxes, penalties, and in some states, additional wage-and-hour claims.
What this means for cross-border staffing in practice
When we place a contractor, the contract structure is built around the country the work is actually being done in and delivered to — not a copy-pasted template. Payment itself is handled through Wise Business specifically because it makes it straightforward to pay contractors correctly across currencies without the friction of traditional cross-border bank transfers.
This is a general overview, not legal or tax advice — IR35 and worker-classification rules are fact-specific and can change. If you're making a classification decision for a specific role, it's worth getting sign-off from a qualified accountant or employment lawyer in the relevant country.
If you're navigating this for an upcoming contract hire, get in touch and we can talk through how it'd actually be structured.