An engagement is inside IR35 when, after applying the status tests, the contractor is treated for tax purposes as if they were an employee of the end client rather than genuinely in business on their own account. The income from that engagement is then taxed broadly like employment income, with PAYE and National Insurance applied.
The practical consequence depends on which regime applies. Under Chapter 10 (medium or large client), the fee-payer operates PAYE and employee NIC on the payment, and pays employer NIC at 15% plus the Apprenticeship Levy, before the net reaches the PSC. Under Chapter 8 (small or overseas client), the PSC self-assesses and operates a deemed employment payment, but keeps the 5% expenses allowance.
For a genuinely inside-IR35 engagement, the tax-efficient salary and dividend split normally available through a PSC is largely lost, so an umbrella company is often the simpler and more economic route (no PSC running costs, no double layer of PAYE admin). Whether to keep the PSC depends on whether the contractor also holds outside-IR35 work. Note that inside-IR35 home-to-client travel is generally not deductible, because each engagement is treated as a separate employment.