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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, itâs 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.
IR35, officially known as the âoff-payroll working rules,â 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 âdisguised employment,â ensuring that such individuals pay the appropriate income tax and National Insurance contributions (NICs) as regular employees would.
Determining your IR35 status depends on several factors, including the level of control your client has over your work, whether youâre obligated to accept work, and if you can provide a substitute to carry out your duties. Itâs essential to assess each contract individually, as different engagements may have varying IR35 statuses.
The Autumn Budget 2024 brought several significant changes affecting contractors:
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 employeesâ earnings will reduce from ÂŁ9,100 to ÂŁ5,000. While the Employment Allowance will increase to ÂŁ10,500 to assist small businesses, many contractor limited companies may not be eligible for this allowance.
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.
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.
These changes have several implications:
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.
Given the evolving tax landscape, itâs 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.
To navigate these changes effectively:
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