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Solutions for if your contractors fall inside IR35

IR35 may have been delayed, but it's still very much on the agenda, so it's still wise to consider what you'll do if contractors (PSC) you currently use fall inside of the legislation.

Well, there are a number of options that end hirers using contractors can choose. Here’s just some of them:

Option 1: Transfer your contractors to PAYE/umbrella

Most recruitment agencies will offer a PAYE service, or will work with a number of approved umbrella companies who can. With so many agencies successfully managing a high volume of PAYE individuals each month, having your contractors work under a PAYE contract could be one of the simplest solutions for you. Eliminating even more of the strain, your agency will normally take care of tax deductions and ensure your contractors are fully compliant too.

Option 2: Draw up a Statement of Work

A Statement of Work is a fully outsourced service – it can’t be disguised as a provision of labour. In a typical Statement of Work responsibility for the successful completion of a project falls to the agency, rather than the end hirer (i.e. you). In other words, some recruitment agencies would source a contractor to quote for your entire project and deliver a structured package. IR35 rules don’t apply for genuine Statement of Work scenarios and as your agency is the fee payer, it will be responsible for IR35 determinations, as opposed to you.

Option 3: Outsource your individual packages of work

If you have several ongoing pieces of work or projects that you need to complete, a better option may be to outsource it. Many engineering agencies will have links with engineering and/or design specialists that provide outsourcing services. Some even have in-house capabilities, providing you with a natural extension of your business.

Option 4: Limited outside of IR35 (for small companies)

Remember that if you’re classified as a ‘small business’, the new IR35 legislation (V2) doesn’t apply and as such you will be under the older IR35 legislation so the responsibility falls to the LTD/PSC contractor. HMRC classifies a small business as one which falls into two of the following three categories:

•Less than 50 employees

•Turnover of less than £10.2m

•Net profit of less than £5.1m

If your company falls into HMRC’s definition of ‘small’ then Limited contractors can continue to work outside of IR35. Check out HMRC’s IR35 guidelines here.

Option 5: Make your contract role a permanent one

Is it possible to take on current contractors as permanent members of staff, or replace contractors with a new permanent employee? Complications surrounding IR35 of course only apply to contractors, so amending the role slightly could be an option. This option will obviously come with additional tax implications but perm salaries tend to be much lower than contractor rates.

Please be advised that you should take your own legal advice with any of these solutions.

IR35 doesn’t have to be difficult, and we’re here to support. If any of our client solutions sound like they may be of interest to you, start planning sooner rather than later.

We’re offering our clients a free consultation (book yours below). We’ll visit your workplace to talk you through the options available to you and discuss how DATS may be able to help.

Alternatively, check out our full range of services here or email us at

​Book your free IR35 Solutions consultation

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