Changes to off-payroll working rules (also known as IR35) came into effect in the private sector in April 2021. These rules mean that private sector clients judge a contractor’s IR35 status, rather than the contractor themselves.

Following a period of ‘light touch’ enforcement during the pandemic, HMRC is expected to enforce the new rules more rigorously in 2022. In the coming months, many companies may be revisiting contractor policies and IR35 judgements.

It may be that some contractors who were previously judged as ‘outside IR35’ may be reconsidered ‘inside IR35’. But what does this mean for contractors? And can they continue working through a limited company?

It is possible to continue working through a limited company if you are judged to be inside IR35. But you may be better off using an umbrella company, going PAYE or becoming a sole trader.

If you are deemed to be inside IR35, you are effectively an employee for tax purposes. This means that you’ll pay income tax and National Insurance at the same level as a company employee.

However, if you continue working through a limited company, you won’t get the same rights as a regular employee. You’ll also have to manage your company accounts and perform some of the other administrative duties that come with being a company director. 

Whether you choose to continue working through a limited company or switch to another type of employment is based on a number of factors.

• If an inside IR35 contract is only short-term

If you are only working inside IR35 on a short-term basis it’s probably worth keeping your limited company open. But if follow-up contracts are also deemed inside IR35 then you may need to look at alternatives.

• If you work on multiple contracts

If you work on multiple contracts and some are inside IR35 and some are outside IR35, you may decide it’s easier to continue running your limited company for the outside IR35 contracts.

• If you work for a mixture of small and large clients

The new IR35 rules only apply to large and medium sized private sector clients, so it may be worthwhile keeping your limited company open if you plan to work with smaller companies in the future.

The umbrella-limited company hybrid model

If you are deemed inside IR35 by a client, but you don’t want to close your limited company, you might consider using an umbrella-limited company hybrid.

This means that you’ll enjoy the simplicity and employment benefits that come with using an umbrella company for inside IR35 work, while keeping the option open to use your limited company for any outside IR35 contracts.

At Umbrella.co.uk we provide umbrella and tax services to contractors, so we’re ideally placed to help contractors that want use a combination of umbrella and limited company. See our IR35 guide for contractors

For more information about our services, speak to a member of the team today. Call: 0800 121 6513.