Large and medium-sized businesses need to be ready for IR35

Large and medium-sized businesses now just have a couple of months left to prepare for the changes to the off-payroll working rules (IR35).


From 6 April 2021, in most cases, the engager (employer) will be responsible for deciding whether to deduct tax and National Insurance Contribution (NICs) from freelancers and contractors, operating via a Personal Service Company (PSC), as if they were employees.


The new IR35 rules do not affect small businesses, as defined by the Companies Act 2006, where they meet two or more of these criteria:

- Annual turnover is no more than £10.2 million;

- A total of fixed and current assets (before deducting current liabilities, long-term liabilities and deferred tax provisions) over £5.1 million; or

- No more than 50 employees.

When a business grows from a small to a medium or large-sized business there is a two-year transition period before the IR35 regulations fully apply to that business.


Engagers are required to undertake this IR35 determination for every contract they agree with a worker. The official guidelines are as follows:

- Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with

- Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid

- Have processes in place to deal with any disagreements that arise from your determination.

The Government has created an assessment tool, CEST, which can be found here. This can be used to assess whether the engagement is classed as employment or self-employment and a report can be printed out as a record of your assessment if challenged by HMRC.


If the determination results in a contractor being within the IR35 rules, you will need to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.


Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions (NICs) become their responsibility.


Where you hire a contractor via an agency it is the responsibility of the closest intermediary to the PSC to calculate, deduct and pay tax and NICs via PAYE on the contractor’s remuneration.


It is estimated that almost a quarter of the UK’s workforce now works on a contingent basis, either in the public or private sector, and so businesses must be prepared for the changes ahead.


Here are some basic steps that all businesses can take to help them prepare:


Conduct an audit of freelancers and contractors


As it will be the responsibility of the person engaging the services of a contractor to determine whether their work falls inside the new rules, you should carry out an audit of all employees and contractors currently working within your business to determine who may be affected.


Determine who falls under the rules


Last year, many businesses were considering a blanket approach to freelancers, but recent research suggests that more companies are taking a measured approach to ensure they aren’t disadvantaging contractors. You will need to determine whether each contractor falls “inside” or “outside” of the new rules.


This should be done on a case-by-case basis, as you could face serious repercussions for failing to demonstrate reasonable care to correctly classify such roles for employment tax purposes.


If the engager fails to correctly determine status, they will be held liable for any tax charges or NICs and could face a penalty from HMRC.


Communicate all changes 


Once you have determined whether a person falls within the rules or not you should communicate any changes to them. It is important to demonstrate that you are taking reasonable care to assess their status.


If you determine that a person should be within the new rules and you switch them to the PAYE system, as required, they could see their take-home pay reduced considerably. You should take the time to discuss these changes with them.


There is a disagreement procedure created by the Government to be used by the contractor and the organisation paying the fees if all parties do not agree with the determination.


Create an agreement policy


Businesses should prepare an agreement policy for any new contractors they take on from April 2021, which clearly outlines the contractor’s employment status.


Existing contractors might also need their agreements adjusted in light of the IR35 changes if they run into the new financial year.


Consider the costs


Many contractors have indicated that they intend to increase their daily or hourly rate to compensate for their income tax and NICs being deducted by employers.


You should discuss this with contractors as soon as possible so you can factor any additional costs into your employment budget.


If you rely on the services of contractors or freelancers it is important that you prepare your payroll systems and process for these changes.

The hidden savings tax trap and why changes to ISAs make it harder to put money away

By Charlie Flockhart • June 4, 2026
Do you know what your Personal Savings Allowance is? While most taxpayers in the UK will know the thresholds for Income Tax, a worrying few know the way in which personal savings can be subject to tax. With ISAs set for a significant overhaul, understanding the less tax-efficient saving options will soon be more important. How much tax do you pay on your savings? While your savings are not taxed, any interest generated by those savings could be subject to tax if it exceeds your Personal Savings Allowance. Depending on the rate of Income Tax you pay, your Personal Savings Allowance will differ. The thresholds are: £1,000 for Basic-rate taxpayers £500 for Higher-rate taxpayers £0 for Additional-rate taxpayers ISAs remain the more tax-efficient saving strategy as the interest generated from them is tax-free. It is therefore most effective to utilise the full £20,000 saving limit for an ISA as early in the tax year as possible to benefit the most from the accumulation of interest. How should tax on savings be managed? The main issue is that tax on savings is often overlooked, resulting in HMRC taking action for underpaid taxes. This will often manifest in a charge through PAYE, as employees are more likely to overlook this obligation. Those filing Self Assessment tax returns should already be declaring interest earned, so any compliance issue in that group points to a wider problem with handling tax obligations. When attempting to make the most of saving strategies, it is best to seek professional financial advice. This will be more important if the saving limit for Cash ISAs falls to £12,000 for under-65s in 2027 as proposed, leaving younger savers to have to find new ways to grow their wealth. Our professional team can help you to determine an effective saving strategy that suits your financial goals while helping you to be mindful of the tax obligations that you may face. We do not want to see anyone caught off-guard by an unexpected tax bill and understanding your exposure is vital for preventing this. Get in touch with our team to regain confidence in your saving strategy.

Salary sacrifice cap and the squeezed middle

By Charlie Flockhart • June 4, 2026
The £2,000 cap on National Insurance (NI) free salary sacrifice pension contributions was sold as a tax on high earners but, if you look closer, the opposite is true. In fact, the people most exposed are middle-income savers and the small businesses that employ them. For the so-called “squeezed middle”, it is yet another quiet hit to take. Why do the rules adversely affect middle-earners? From April 2029, salary sacrifice tax relief will continue to be available, but only the first £2,000 of employee pension contributions each year will be free of NI. Anything above that becomes liable to NI for both the employee and the employer and the full adverse effect is clear once the different rates of NI are accounted for. If a person’s total pension contributions are modest, say up to six per cent, those individuals who earn between £35,000 and £50,270 will pay an eight per cent NI charge on pension contributions above the £2,000 cap. By contrast, an individual whose earnings already exceed the upper earnings limit of £50,270 will pay employee NI at just two per cent on those same excess contributions. This imbalance in the NI system means that those on lower incomes could pay four times the NI rate on their pension savings in excess of the new threshold than the highest earners pay. How does this change affect employers’ National Insurance bills? Many employers currently share their own NI savings by topping up staff pensions, but a new 15 per cent employer NI charge on contributions above the cap makes those top-ups unaffordable for a lot of firms. As a result, some employees could see the overall efficiency of their pension saving above the cap fall by as much as 23 per cent once lost top-ups are counted. Even those who stay below the threshold are not safe, as the Office for Budget Responsibility (OBR) estimates that around 76 per cent of higher employer costs are eventually passed back to staff through weaker pay rises and trimmed benefits. Don’t wait for the change The good news is that there is time to plan, as the rules do not take effect until April 2029, which leaves room to act while current allowances still apply. If you are a middle earner, this is exactly the moment to review your pension strategy, weigh up complementary options such as ISAs and make sure your retirement plans stay on track. To talk through what the salary sacrifice cap means for you, please get in touch with our team.

Government summer savings spree adds complexity to VAT for hospitality and tourism

By Charlie Flockhart • June 4, 2026
When Rachel Reeves announced a temporary cut in VAT from 20 per cent to five per cent for family attractions and children’s dining over the summer holidays, the hospitality and leisure sectors broadly welcomed it. The scheme runs from 25 June to 1 September and is funded, according to the Treasury, by closing a tax loophole used by oil and gas companies with overseas operations. On the surface, this looks like good news worth welcoming. However, for the businesses applying the new rules, the reality of delivering the rate cut is more complicated than the headlines suggest. The rules shift from one service to the next How the cut works depends heavily on what is being sold. Admission tickets to amusement parks, water parks, zoos, museums, soft play and similar venues qualify, as do children’s and family tickets to cinemas, theatres and concerts. However, pay-per-ride attractions do not. Children’s meals only qualify when served from a clearly marketed, separate children’s menu. A smaller portion of an adult dish does not count, nor does a discounted adult meal or a takeaway. Season tickets and annual passes are generally excluded too. The result is that many businesses will apply two VAT rates at once on the same bill. Tills, accounting systems and front-of-house staff all need to handle that from day one, then revert again from 1 September. This adds an additional layer of complexity to VAT reporting that businesses need to consider right away. Encouraged, but not required The Government has urged businesses to pass the saving on to customers and the Competition and Markets Authority has new anti-profiteering powers to prevent unethical activity. Even so, there is no legal obligation to lower prices at the till and many businesses will weigh up rebuilding margin, reinvesting and matching competitors before deciding exactly what savings to offer to consumers. Given the wider cost challenges that businesses currently face, the scheme may not deliver the lift at the till that many customers are expecting. Right idea, wrong season? There is also a question of timing. The scheme targets the period when families already spend most on days out and when operators are near capacity. A cut would arguably do more for businesses in the quieter autumn and winter months. As designed, it looks more like household support than business stimulus. Any support for the sector is welcome, provided businesses seek the expert guidance required to manage obligations and make the most of any new opportunities. If you would like to discuss what the temporary VAT cut means for your business, please get in touch with our team.