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Inside IR35, What Are My Options?

Are you faced with the decision of what to do when the IR35 changes hit in April this year? We have compiled a list of options for you to consider to help make the decision a little easier!

Inside IR35: what are my options?

It’s coming up to that time when most contractors will start considering their next step in regards to contracting post IR35 changes. 

The majority of contractors working within the private sector have been or will be deemed as operating INSIDE of IR35.

If you have been correctly assessed as working inside of IR35 and you challenge it, it’s important to know that this could cause issues further down the line. Even if you are able to find a limited company that is willing to declare you as outside IR35, despite signs to indicate you are not, the company would be at risk of a huge penalty as a result. Nixon Williams states that “HMRC can open an investigation into your IR35 status if it thinks an outside IR35 determination is wrong”.

What does it mean to be INSIDE IR35?

So how does being inside IR35 affect you as a contractor? Simply Business puts it into simple terms when it says: “if a contract is inside IR35, you have to pay income tax and National Insurance Contributions just like employees do.”

The new rules state that: “95% of the income from an inside IR35 engagement must be treated as employment income. You (or your accountant) will need to calculate a deemed salary and make the required payroll submissions to HMRC,” – SJD Accountancy.

However, certain expenses can be deducted from your contract income when trying to determine the amount of tax you are required to pay in order to be compliant. These include: 

  • Employer contributions to approved pension schemes which attract tax relief in the normal way.
  • Any other expenses which do not fall within S336 ITEPA, but have another statutory route for a deduction, such as professional subscriptions and professional indemnity or personal liability insurance.

What Are My Options Come April?

The majority of contracts within the private sector will fall inside of IR35. There will be a few exceptions to this, but contracts falling outside of IR35 with limited companies will be rare as of 6 April 2021. 

This leaves the following options for contract workers:

Permanent/ Perm via Limited Co

If you are currently contracting via a limited company, you may be given the opportunity to work as a permanent employee for the company. 

The benefits of leaving contracting behind for a permanent position is that 

But there are several cons to the move too. For example, the 5% allowance that private sector contractors currently may take advantage of will no longer be an option when the tax responsibility changes to the end hirer. The government website confirms this, saying: “when working for a medium or large end hirer the rules will be brought in line with the private sector.”

“As a contractor working inside IR35, you cannot claim the same expenses that you can when working outside the rules. In 2017, the taxman introduced changes which mean that travel and subsistence expenses, like mileage, accommodation, meals and other ad-hoc costs, are not legitimate on inside IR35 contracts,” – SJD Accounting.

If you do choose to stay on as a permanent employee, KB Accountancy Group recommends negotiating a higher rate with your end hirer if your contract is deemed as inside IR35. 

Requesting a higher pay rate may go some ways to compensate for the loss you will inevitably be faced with.

SG Accounting also suggests leaving contracting behind, saying “No-one wants to turn down a lucrative contract, but if you decide that the conditions attached to the contract are unworkable, it may be better to reject it or look for permanent employment, instead of placing yourself in a situation where you could potentially lose money.”


PAYE (Pay As You Earn) is a universal pay system. Your agency may offer to pay your wages via their in-house payroll team, in which case you will be paid via PAYE. 

The pro to PAYE is that your taxes and other relevant deductions are taken care of for you and you are free to continue working as a contractor. 

The downside to this pay model is, according to Morson, “as a temporary PAYE worker there is no ability to benefit from tax efficient measures such as salary sacrifice pension schemes or claiming tax relief for travel and accommodation expenses not covered by the client.”


The third option is to find yourself an Umbrella to work through. Umbrellas act as a contractor’s employee, which means you are eligible for the relevant benefits of being a permanent employee whilst retaining the independence of contracting. 

When talking about the perks of Umbrella contracting, Morson claims that “…you would be employed under a contract of employment with the umbrella company. This means that whether you carry out one assignment or multiple assignments, you’ll be employed under the same contract. This gives you a record of continuous employment as you move from one assignment to another which may help with mortgage or loan applications.

This method also helps to ensure that you are on the correct tax code whilst providing you with one pension pot. The umbrella company will provide all statutory benefits such as maternity and sick pay but and, in most cases, provide additional benefits such as reward schemes and personal insurance at no extra cost.”

Nixon Williams comments that “With the right umbrella company, it can be a stress and hassle free way of getting paid whilst you contract.” and that “Employees of an umbrella company will get all the benefits and protections of employment, such as a workplace pension, holiday pay and maternity/paternity pay, amongst other employee benefits, whilst still retaining all the freedom of contracting”

Take Home

Whatever path you choose to take, make sure you have weighed each option up carefully to find the one that’s right for you.

Choosing Umbrella? Get a free quote today with one of our trusted Umbrella and see what you could be taking home come April 2021. 

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