Insights
IR35 Update: The Risk Landscape Has Changed
IR35 Update: The Risk Landscape Has Changed
For many organisations, IR35 decision-making is still influenced by the risks that existed when the off-payroll reforms were introduced in the private sector in 2021.
However, a number of significant legislative changes have altered that position.
The key developments were the introduction of the IR35 Offsets legislation in April 2024 and the implementation of new Umbrella Company legislation in April 2026.
Together, these changes have reshaped how tax risk sits across the contractor supply chain.
The 2024 Offsets Legislation
What is the IR35 Offsets legislation?
In April 2024, Statutory Instrument 2024/355 introduced the long-awaited “Offsets” fix.
This reduced potential IR35 tax exposure from around 34% of fees to less than 10% of fees, as taxes already paid within the supply chain can now be offset against any liability.
Key points
- Statutory Instrument 2024/355 came into force in April 2024
- Taxes already paid can now be offset against liabilities
- Protection applies retrospectively back to 2017
- Tax exposure reduced from approximately 34% to below 10% of fees
- A significant barrier to engaging contractors was removed
This legislative change dramatically reduced IR35 tax risk compared to the position that existed when the private sector reforms were introduced.
How the IR35 Risk Profile Has Changed
Before 2021
- PSC / Outside IR35 engagements carried relatively low risk
- Umbrella arrangements carried minimal risk
- Agency PAYE carried minimal risk
2021 Private Sector Reform
- Client and agency tax risk on PSC / Outside IR35 engagements increased significantly
- Many organisations responded with blanket Inside IR35 determinations and umbrella requirements
2024 Offsets Legislation
- Risk associated with PSC / Outside IR35 engagements reduced substantially
- Tax exposure reduced to below 10% of fees
The key takeaway is that the risk profile today is materially different from the one many businesses assessed in 2021.
The New Focus: Umbrella Company Risk
What does Joint and Several Liability mean?
The Joint and Several Liability (JSL) legislation came into force in April 2026, introducing greater accountability across labour supply chains involving umbrella companies.
Under the new rules:
- Agencies, clients and umbrella companies can become jointly responsible for unpaid tax liabilities
- If an umbrella company defaults, liability may pass elsewhere within the labour supply chain
- HMRC has stated that accreditation and certifications do not provide protection
- Reliance on payslip checks and RTI returns is not considered a defence
- Agencies carry significant responsibility within the supply chain
The practical implication is clear:
Umbrellas should no longer be viewed as a simple solution to Inside IR35 determinations. In many cases, they introduce additional supply-chain risk.
What This Means for Clients
Should businesses reassess their IR35 strategy?
Businesses should reassess assumptions made during the immediate post-2021 period.
Historically, many organisations viewed:
Outside IR35 = Higher Risk
Today’s position is more nuanced:
- The 2024 Offsets legislation significantly reduced potential IR35 tax exposure.
- HMRC compliance processes are now more established and better understood.
- The introduction of Joint and Several Liability has increased scrutiny and risk across umbrella supply chains.
- A genuinely Outside IR35 engagement, supported by robust status assessments and compliance processes, may present a very different risk profile to the one many organisations based decisions on in 2021.
One of the most significant shifts is where risk now sits within the supply chain. With taxes already paid being offset and greater accountability applying across umbrella arrangements, many of the assumptions made about contractor engagement models in 2021 are worth revisiting.
What This Means for Contractors
While much of the IR35 conversation focuses on clients and recruitment businesses, these changes are also important for contractors.
The introduction of Joint and Several Liability has increased scrutiny across umbrella company supply chains, making due diligence more important than ever.
Contractors working through umbrella companies should understand how their provider operates, the compliance processes in place and the wider supply chain supporting their engagement. This is particularly important when choosing an umbrella company and assessing whether the provider operates transparently and compliantly.
For contractors operating through a Personal Service Company, the Offsets legislation has also changed the wider risk landscape. Combined with robust status assessments, clear contractual arrangements and working practices that reflect the agreed engagement, organisations may now reassess assumptions made when the private sector reforms were first introduced.
Looking Ahead
Alongside these changes, the Employment Rights Act 2025 has introduced:
- Day-one parental rights
- Statutory Sick Pay reform
- Rights to guaranteed hours
- Restrictions on “fire and rehire”
As employment obligations continue to expand, contractor engagement models may become increasingly attractive for organisations seeking flexibility alongside specialist expertise.
Frequently Asked Questions
What is the IR35 Offsets legislation?
The IR35 Offsets legislation was introduced through Statutory Instrument 2024/355. It allows taxes already paid within the supply chain to be offset against potential liabilities arising from an IR35 challenge.
How much did the Offsets legislation reduce potential IR35 tax exposure?
The Offsets legislation reduced potential IR35 tax exposure from approximately 34% of fees to less than 10% of fees, as taxes already paid can now be taken into account.
Has Outside IR35 become less risky?
The Offsets legislation significantly reduced the potential tax exposure associated with an IR35 challenge. However, an Outside IR35 engagement must still be supported by a robust status assessment, appropriate contractual terms and working practices that reflect the agreed engagement.
What is Joint and Several Liability?
Joint and Several Liability legislation came into force in April 2026 and increased accountability across labour supply chains involving umbrella companies. It means liability for unpaid tax may pass to other parties within the supply chain.
What do the IR35 changes mean for clients?
Businesses should revisit assumptions made following the 2021 reforms, particularly around Outside IR35 engagements, umbrella company risk and contractor engagement strategies.
Why does choosing the right umbrella company matter?
Joint and Several Liability has increased scrutiny across umbrella company supply chains. Contractors, recruiters and clients should therefore consider compliance, transparency and due diligence when selecting or approving an umbrella provider.
Should businesses review their contractor engagement strategy?
Businesses whose contractor policies have not been reviewed since the 2021 reforms should consider whether their approach still reflects the current IR35, tax and umbrella company risk landscape.
Want to Discuss Your IR35 Strategy?
The contractor market, legislation and supply-chain risk landscape continue to evolve.
Whether you’re engaging contractors for technology, change or insurance programmes, now is a good time to revisit assumptions made during the early stages of the off-payroll reforms and assess whether your current engagement model remains the right one.
Speak with our team to discuss your contractor hiring strategy and IR35 approach.