IR35

Since the introduction of the IR35 Legislation in 2010, the rules have followed a long and contentios consultation period, meaning the dates and rules themselves have been subject to many changes leaving many contractors increasingly confused and finding the legislation difficult to navigate correctly. The complexity and ambiguity of the legislation, alongside HMRC’s strict enforcement, has led many end clients and agencies to adopt a blanket approach, autoatically placing contracts within IR35. This reduces their risk of penalties but can be frustrating for contractors, who are often treated as "disguised employees," despite working as self-employed professionals.

What IR35 Means for Contractors

The best way to get an idea of whether this legsialtion affects you is to ask yourself the followning questions;

Consistently work at one location?

Use the company’s tools or equipment?

Are supervised and directed in your work?

If you have answered "Yes" to these points, you may be considered within IR35, meaning HMRC sees you as a "disguised employee" rather than self-employed. An employed role would entitle you to "employee benefits" such as sick pay, holiday pay, and pension contributions. However, many agencies and clients lack the resources to employ contractors directly, often due to the short-term nature of contracts which is why Umbrella Payroll Providers pick up this end of the process.

The Umbrella Solution

Many contractors use umbrella companies to manage their employment and payroll. This gives contractors the benefits of being employed, while the umbrella provider handles taxes, National Insurance, and other legal obligations. However, the cost of using an umbrella provider can be higher than direct employment, as the contractor typically pays both their own and the umbrella's employer National Insurance. Additionally, holiday pay is often based on the minimum wage, reducing its value.

Unfortunately, umbrella providers that charge high fees or have hidden costs can make the situation more financially challenging for contractors. If you’re unsure about your IR35 status or want to explore alternative umbrella options with potentially better rates, we offer consultations to help you understand your options and find the best solution for your needs.