IR35 Compliance: What Contractors Need to Know in 2025

In this article, we take a look at IR35 compliance and what it means to contractor workers in 2025.

written by
Dexter Dyer Director
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Navigating the world of contracting in the UK can be complex, especially with the evolving landscape of tax legislation. One of the most significant regulations affecting contractors is IR35. As we step into 2025, it’s crucial to understand what IR35 entails, the recent changes introduced in the Autumn Budget 2024, and how these impact both contractors working inside and outside of IR35.

What is IR35?

IR35, officially known as the “off-payroll working rules,” is a set of tax regulations designed to identify individuals who are providing services to clients via an intermediary, such as a personal service company (PSC), but who would be considered employees if the intermediary was not used. Essentially, IR35 aims to combat “disguised employment,” ensuring that such individuals pay the appropriate income tax and National Insurance contributions (NICs) as regular employees would.

Inside vs. Outside IR35

  • Inside IR35: If your contract falls “inside IR35,” HMRC views you as an employee for tax purposes. Consequently, you’ll be required to pay income tax and NICs similar to an employee. This typically results in higher tax deductions and reduced take-home pay.
  • Outside IR35: If your contract is “outside IR35,” you’re considered genuinely self-employed. This status allows you to pay yourself through dividends and a salary, often resulting in a more tax-efficient income.

IR35 Status Determination

Determining your IR35 status depends on several factors, including the level of control your client has over your work, whether you’re obligated to accept work, and if you can provide a substitute to carry out your duties. It’s essential to assess each contract individually, as different engagements may have varying IR35 statuses.

Changes Introduced in the Autumn Budget 2024

The Autumn Budget 2024 brought several significant changes affecting contractors:

Increase in Employer NICs

Starting from April 2025, the rate of employer NICs will rise from 13.8% to 15%. Additionally, the threshold at which employers become liable to pay NICs on employees’ earnings will reduce from £9,100 to £5,000. While the Employment Allowance will increase to £10,500 to assist small businesses, many contractor limited companies may not be eligible for this allowance.

Mandatory Payrolling of Benefits

From April 2026, it will be mandatory for all employers to payroll all benefits in kind, except for employment-related loans and accommodation. This means that the value of these benefits will be taxed through the payroll system, potentially affecting contractors who receive such benefits.

Responsibility for PAYE in Umbrella Companies.

To tackle non-compliance in the umbrella company market, new legislation will make agencies responsible for PAYE on payments made to workers supplied through umbrella companies. This change, effective from April 2026, aims to ensure proper tax deductions are made, potentially impacting how contractors engage with umbrella companies.

Implications for Contractors

These changes have several implications:

Shift in Engagement Models

With agencies becoming responsible for PAYE in umbrella arrangements, there might be a shift towards direct engagements or increased scrutiny in the use of umbrella companies. Contractors should be vigilant and ensure compliance in their working arrangements. Here at Umbrella.co.uk, we are fully compliant with all HMRC regulations, and are annually accredited by the FCSA.

Need for Regular IR35 Assessments

Given the evolving tax landscape, it’s crucial for contractors to regularly assess their IR35 status for each contract. This proactive approach can help in mitigating potential tax liabilities and ensuring compliance with HMRC regulations.

Guidance for Contractors

To navigate these changes effectively:

  • Stay Informed: Regularly update yourself on HMRC IR35 regulations and any further legislative changes. Subscribing to reputable industry newsletters and consulting with tax professionals can be beneficial.
  • Conduct Thorough Contract Reviews: Before entering into any contract, assess its terms to determine your IR35 status. Consider seeking professional advice to ensure accurate evaluations.
  • Maintain Comprehensive Records: Keep detailed records of your working practices, contracts, and communications with clients. This documentation can be invaluable in the event of an HMRC inquiry.
  • Consider Professional Indemnity Insurance: This insurance can provide protection against potential claims arising from your professional services, offering an added layer of security.

Get in touch with Umbrella.co.uk

If you have any questions about IR35 or compliance, our team are always on hand to help. You can get in touch by calling: 01625 546 610 or emailing info@umbrella.co.uk

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