IR35: How Will the New Legislation Affect Contract Work?

31st October 2019 - 12:00

by Guy Morley

There are numerous benefits to contract work. For employers, it’s a chance to bring in specialists without having to make long-term salary commitments. For the workers themselves, contract working provides the freedom to choose their projects, the flexibility to design their working schedule, and the excitement of having variety in their work.

In most cases, the employer will hire the contract worker directly as a genuine contractor, freelancer, interim employee or consultant who is in business on their own account. In other cases, employers hire workers on a self-employed basis through an intermediary rather than on an employment contract. These employees become ‘disguised’ workers, and hiring this way can incur high tax fines from HMRC.

In April 2020, new changes to the IR35 legislation, which governs this type of contract work, will come into effect. It’s essential that employers and employees—especially in the tech sector where disguised working is common practice—prepare themselves for what lies ahead.


What is IR35?

IR35 is a piece of tax legislation that was introduced in 1999 to combat tax avoidance from 'disguised employment,’ which is where self-employed contractors set up limited companies to pay themselves through dividends, which are not subject to National Insurance[1].

If the employer is in the public sector, it’s up to them to determine whether IR35 applies. If they decide that it does, the employer will place the contractor onto their payroll and deduct the necessary expenses before paying the contractor.

Alternatively, if the employer is in the private sector, IR35 requires the intermediary—in most cases the limited company of the contractor— to make an extra payment to HMRC to fulfil the additional tax and National Insurance amounts that would have been received from an equivalent employee. Because of this, IR35 can reduce the net amount earned by the contractor by as much as 25%[2].


What’s Changing?

On 6 April 2020, changes to the legislation will bring the private sector in line with the public sector. Medium and large organisations—those with over 50 employees or £10.2m annual turnover[3]—will become responsible for assessing the employment status of their contractors. This shift of responsibility aims to reduce the cost of non-compliance and make it easier for HMRC to monitor and enforce compliance going forward. It is projected that without this change, the cost of non-compliance in the private sector would escalate to £1.3bn by 2023 or 2024[4].


What to Do: Contractors

The proposed changes have already caused a decline in the number of tech freelancers in the public sector. There were 2.4% less contractors in the sector in 2018 than there were in 2017[5]. This is the sharpest decline in a decade, since the global financial crisis in 2008 created a boom for contract work.[6]

It is essential that contractors operating through their own limited companies understand how the new changes will affect them. Researching the legislation, what it entails, and what your responsibilities are can go a long way in ensuring compliance.


What to Do: Employers

A number of organisations have already announced changes to how they will hire contract workers as a result of IR35 changes. Barclays will no longer hire contractors who provide their services via a personal services company, limited company, or other intermediary unless they are to work on a PAYE (pay as you earn) basis[7]. Tesco Bank will declare all contractors inside IR35 if they wish to work with the bank beyond March 2020[8].

However, recent research has found that 43 per cent of senior personnel do not know how IR35 will affect their business, with 42 per cent unaware of the fines for non-compliance[9].

HMRC announced it will release an updated version of the official ‘check employment status for tax’ (CEST) tool ahead of the new reforms. In the past, the CEST tool has often been criticised for its inability to accurately assess IT contractor assignments. Not much is known yet about how CEST will change, but clients should not place all of their trust in the tool. Familiarising oneself with the requirements will help to ensure that proper judgements are made and non-compliance is avoided.

It’s essential that organisations that hire contractors assess and produce a Status Determination Statement (SDS). This comprehensive statement declares a contractor’s deemed employment status and the reasons why this conclusion was reached. Once the SDS has been determined, it then needs to be handed down the chain of command so that all key parties are fully aware of their responsibilities. Otherwise, responsibility will lie with the client and massive fees may be incurred.


There’s still plenty of time to prepare, but it’s better to start now and be ahead of the game.

Advento Staffing have partnered with Parasol Group to offer advice and support around the new IR35 legislation for private companies. As a result, we’re offering companies a FREE one-hour face-to-face advice session with our experts to prepare. Additionally, we have developed both an Assessment Tool for roles deemed outside IR35 and a FREE Business Impact Tool to assess the risk with current contract burden.

Contact us at or call +44 (0) 1892 512494 for more information and to schedule your advice session. Don’t leave it until it’s too late!











About Us

Find out about how Advento
can make a difference for you

We would love to hear from you, please get in touch:

+44 (0) 1892 512494   |

Our customers are not slow to say what they like about working with us...

we support

Win Technologies
Virgin Atlantic
Tungsten Network
Smart Focus
RU Digital
Pollen Street Capital
One Family
NFU Mutual
Future Platforms
Libert yGlobal
European Bank
AXA PPP Healthcare
Domino's Pizza
Markerstudy Group

We’re using cookies to give you the best experience. See our Cookies Policy. By continuing to use our website without changing the settings, you are agreeing to our use of cookies.

Accept and Close