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IR35 has long been criticised by both the self-employed and those who support the sector; determining whether or not you fall inside or outside of the legislation can be complex, not to mention the new changes that have created even more issues.

What is IR35?

An IR35 status will impact the amount of tax and National Insurance Contributions you pay, as well as whether you are able to claim back on certain expenses.

Based on your level of risk, liability and responsibility as a worker, you will either fall ‘outside’ or ‘inside’ IR35 – if your contract shows that you have the same levels as other contractors, this will result in falling ‘outside’.

If not, your contract will be seen as being similar to that of a permanent worker, which means that you fall ‘inside’ and will have to pay more tax and NICs than a contractor working outside the legislation. It also means that you won’t be eligible to claim expenses.

It’s worth noting that your IR35 status can change with each client, which means that you could potentially fall into both categories during the course of a year.

For more information, visit our page How many contractors are caught by IR35?

What is a CEST Tool?

The Check Employment Status for Tax (CEST) is a government tool used to determine a worker’s employment status and uses information based on:

  • Details of the contract
  • The worker’s responsibilities
  • Who decides what work needs to be done
  • Who decides when, where and how the work is done.

There are many concerns about the CEST tool, with reports showing that it has failed to deliver on many occasions, not always giving an accurate employment status determination.

Latest changes to IR35

The legislation now impacts both the private and public sector, but the most recent changes mean that as from 6th April 2021, the responsibility to place a contractor ‘in’ or ‘out’ of IR35 is now on the client to decide instead of the contractor.

This has proved problematic for many self-employed workers – even in the lead up to the changes, many clients admitted they were planning to blanket-assess all of their contractors as ‘inside’ IR35.

Within the first few weeks of the changes, an Association of Independent Professionals and the Self-Employed (IPSE) report revealed that many clients were pushing all of their contractors inside the legislation. The reason being that they felt it is ‘safer’ to do so instead of getting it wrong and facing questions from HMRC.

Another IPSE report found that it was also having a negative effect on contractor rates of pay due to many professionals having to reduce day rates in order to compete for contracts.

How does IR35 affect umbrella company contractors?

Most limited company contractors and sole traders will have dealt with the legislation at some point or another, whether having to decide on a contractor’s status or being questioned about your own.

This is where umbrella company contractors can breathe a huge sigh of relief, as this is something they won’t need to worry about.

As an umbrella company contractor, you are essentially employed by your umbrella company, which means that IR35 doesn’t apply – your tax and National Insurance Contributions are dealt with by your ‘employer’ taking the hassle and stress away from having to file a self-assessment tax return each year.

For more information on the other benefits of working through an umbrella company read our Why use an Umbrella Company page.

We hope you found this page helpful. Our team of experts are available to answer any questions you may have, so drop us a line on 01206 591 000 or email Jaime at

Why Choose Contractor Umbrella?

Contractor Umbrella is the hassle-free, straight talking umbrella company that provides umbrella employment for UK based contractors and freelancers. Independently voted as the best umbrella company by the readers of Contractor UK.

As one of the most trusted umbrella companies in the UK, we guarantee our employees peace of mind, absolute compliance and complete security. We are one of the longest standing and most respected umbrella companies in the UK.

If you’d like to find out more, call us on 01206 591 000 or request a call back by completing our online form.

Benefits of working through Contractor Umbrella;

  • Fast and easy registration –  be ready to work in 24 hours, simply register online and we’ll take care of the rest.
  • Calculate your take home pay – use our online calculator to find out how much you could be taking home through Contractor Umbrella.
  • Same day payments – We offer same day payments as standard providing funds are received into our account by 9am, for no additional fee.
  • Our Service Guarantee – is our guarantee that you will be looked after at every step of the way.
  • Flexible Limited Company accountancy – when you sign up to our sister company Dolan Accountancy, you can transfer to Contractor Umbrella when umbrella employment better suits or your assignment sits inside IR35.
  • Employee Benefits at Contractor Umbrella there are many benefits available to you as our employee including Childcare Vouchers, our Employee Rewards Scheme, Group Pension Scheme, Foreign Currency Exchange, Contractor Accommodation, Contractor Mortgages and much more.
  • Expert Contractor Support Team – Every employee of Contractor Umbrella has access to our expert Contractor Support Team who are available to deal with any queries that you may have. You can get in touch with the Contractor Support Team, through the online chat, by email or by telephone.
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