Contracting in the modern era

One of the most prominent pieces of legislation that affects UK contractors and freelancers is IR35. IR35 came into effect in 2000, and more recent reforms to the off-payroll working rules in the public and private sectors have significantly impacted the UK’s temporary workforce.

To put it simply, IR35 was introduced by the government to stop ‘disguised employees’ from taking advantage of tax breaks that were not intended for them. If a contractor is outside IR35, they’re genuinely self-employed and can operate as the director of a Personal Service Company (PSC), often referred to as a limited company. This is the most tax-efficient way to operate as a contractor, as they can pay themselves with a combination of salary and dividends. However, if a contractor is inside IR35, they are seen to be operating similarly to permanent employees. Consequently, they must be taxed at source via PAYE and will receive a net salary just like a worker in a full-time position.

Before April 2017, limited company contractors could determine their own IR35 status and pay themselves accordingly. However, from April 2017, off-payroll in the public sector meant the responsibility for determining the contractor’s IR35 status passed to the end-hirer (the contractor’s client). It also became the responsibility of the fee-payer (usually the recruitment agency or umbrella company) to deduct the appropriate tax deductions and pay them to HMRC before making a net payment to the contractor. In April 2021, the government implemented off-payroll in the private sector. The same rules implemented in off-payroll in the public sector are now also applied to the private sector.

Using a compliant umbrella company is a very efficient and compliant way for contractors and freelancers to be paid for assignments inside IR35. Opting to use an umbrella company is the easiest way for temporary workers to get paid compliantly, as all tax and National Insurance Contributions are deducted and paid to HMRC on your behalf.

Registering with an umbrella company can be completed in five minutes, and there are no joining fees or tie-in period. Once registered, you become an umbrella employee and will be paid for the hours you work for your end client. There are also plenty of umbrella company benefits, including employee rights, Same Day Faster Payments, free insurance cover, and more.

Umbrella companies process the payment of their employees using HMRC’s tax system – Pay As You Earn (PAYE). This ensures contractors are taxed legally and compliantly with UK tax law. They’re the perfect option for long-term assignments, as the ongoing administration is minimal once you’ve registered. Because there is no tie-in period, umbrellas are also ideal for limited company contractors who take a short-term ‘inside IR35’ assignment, as they can use the umbrella for the duration of the assignment and leave when they want to return to their limited company.

Every week, Churchill Knight Umbrella processes the payroll of thousands of temporary workers in full compliance with HMRC. We’re proudly accredited by the FCSA and believe this is the best way to showcase our dedication to operating compliantly within our sector.

To provide increased value and transparency for every contractor and freelancer using Churchill Knight Umbrella, we are delighted to be an official SafeRec-certified umbrella company. Every payslip we process for an employee is reviewed by SafeRec’s AI-powered payslip auditing software. All of our employees will be emailed a real-time report every time they are paid, allowing them to check that the payslip and payment are compliant and there are no signs of malpractice.

Contact us today

To find out more about our umbrella payroll service or begin the registration process, please call our friendly team on 01707 871622. You can also complete the short form on our website, and a team member will contact you at a time that suits you.