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THE INTRODUCTION of the new IR35 off-payroll changes demonstrate the importance of building a strong employer-contractor relationship to avoid confusion when applying the new rules, according to a senior manager at national accountancy firm UHY Hacker Young’s Nottingham office.


The IR35 legislation, which now applies to both the public and private sectors, aims to eliminate self-employment issues by making sure that personal service contractors operating as employees pay the correct amount of tax and National Insurance.

The changes, which came into force on 6 April 2021, aim to shift the responsibility of employment status determination to the end client – the organisation receiving the services from the contractor. When paying contractors directly, recruitment businesses or clients are now responsible for deducting taxes.

Chris McKain, senior audit manager at UHY Hacker Young’s Nottingham office, said:

“Many industry sectors, particularly IT and technology, have dealt with the reforms in a responsible way – mainly due to the fact they have experienced the impact on the public sector since 2017.

“With these businesses having already adapted to the IR35 changes and having become established in industry-wide knowledge, the rule changes are less frequent in job listings for insurance and finance roles compared to contractor jobs.”

To help employers define the status of contractors, HM Revenue and Customs (HMRC) introduced a Check Employment Status for Tax (CEST) tool.

However, Chris added: “CEST has been criticised for creating further confusion surrounding determining status, with a result of ‘unable to determine’ being a regular outcome when using the tool.”

Previously, contractors were responsible for determining their own employment status and paying HMRC tax and National Insurance accordingly. Contractors’ rates are now being reduced to account for the additional employment costs, such as umbrella fees.

For many larger businesses – particularly in the finance and corporate sector – that have previously employed many contractors, blanket bans have been enforced to stop them engaging with contractors working via personal service companies.

Chris said:

“I do not believe that reasonable care in accordance with IR35 rules and from HMRC’s perspective should be considered a failure, as the clients are not making a generalised decision on a contractor’s employment status.

“Instead, they are making the decision to employ all contractors and in turn, reducing any risk of compliance with IR35 off-payroll rules. Contractors and end clients should not make the assumption that engaging with an umbrella company is the solution.”

With many freelancers being unfamiliar with the concept of umbrella working, there are fears that they could sign up to an umbrella company that doesn’t have their best interests at heart – encouraging the growth of unscrupulous providers and the mis-selling of tax avoidance schemes.

Chris, however, believes many companies will remain compliant. He said:

“I believe that reputable and established umbrella companies will continue to be transparent across their dealings with contractors to ensure that contractual terms and conditions are clearly stated. This will cover how wages and expenses will be paid, how deductions are calculated and how holiday pay will be arranged.”

The government is under pressure to review the IR35 changes from MPs and peers in the all-party parliamentary group (APPG). Members reported that classifying contractors as employees is creating a second-class status, where workers do not enjoy the same rights as permanent employees.

The report highlights failings to deliver the intended reduction in tax avoidance from the changes by workers who are falsely claiming self-employed status. The definition of contracting is also being considered more difficult because of the rule changes.

Chris added:

“The IR35 off-payroll changes have demonstrated how the best solution for both parties is to ensure employers and contractors are cooperating. An agreed approach will bring long-term benefits and reduce the risk for HMRC action and fines.

“In a post-Covid economy, employers are urged to seek professional advice from their accountants, ensuring they continue to access the top talent that meets job requirements and help them to thrive.”

For more information on UHY Hacker Young, please visit or call 0115 959 0900.

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