MTD for Income Tax just got the all-clear in HMRC’s Transformation Roadmap
How a new Revenue roadmap charting Making Tax Digital’s future contains both a green and red light for users of…
The devil that contractors’ engagers know (OPW) may be better than the devil they don’t (JSL), signals Kingsbridge, FCSA, The Law Place and Osborne Clarke.
Finance Bill 2025-26 putting them ‘on the hook’ with HMRC for any tax shortfall from umbrella companies they use could compel end clients to soon “refire” ‘outside IR35’ roles.
The forecast was issued yesterday by Kingsbridge, the leading IR35 insurer.
It stems from the bill’s Joint and several liability (JSL) legislation making clients liable to HMRC from April 2026 if they don’t use an agency but do use an umbrella that was non-compliant.
To head off having to account for PAYE and Class 1 NICs on payments made to umbrella workers that they use (payments which the umbrella didn’t make), clients might simply go back to the talent drawing board.
‘JSL legislation reinserts risk and due diligence engagers thought they had eliminated’
“Being forced to be rigorous about which umbrellas they use will reinsert the risk and ‘due diligence’ that clients eliminated by moving away from ‘outside IR35’ engagements”, says Kingsbridge’s Ryan Dawson.
“Joint and several liability being here from April 2026 will trigger clients to review before then how to engage talent. And a refiring of roles ‘outside IR35’ surely tops the list of options.
“So, UK plc reverting to commercially engaging with limited company workers – after the [off-payroll working] rules made them riskier than umbrella workers – could now be on the horizon.”
Dawson, who is Kingsbridge’s IR35 Project Manager, issued this forecast of a “refiring” of ‘outside IR35’ roles due to the new umbrella company tax legislation on behalf of the insurer.
‘New umbrella company legislation may renew personal service company contracting’
And he isn’t alone in his thinking.
Law firm Osborne Clarke says: “Introduction of laws that further restrict the use of umbrella companies may lead to renewed interest in self-employed models and personal service company contracting.”
On July 22nd, Osborne Clarke partner Kevin Barrow drilled down into what he called the “commercial impact of the proposed umbrella company tax legislation”.
‘No statutory defence in JSL legislation’
“Unlike the [incoming] umbrella tax regime, the IR35 regime has an element of statutory defence for end clients”, he began, alluding to the JSL legislation imposing absolute liability.
“[For example] where appropriate ‘status determination statement’ processes have been gone through, or for end clients/agencies where fraudulent documents have been provided up the supply chain.”
‘Watch for high-profile IR35 assessments from HMRC in the next 12 months’
Asking himself the 64-million-dollar question in an online update “Will the new umbrella tax regime see a movement back towards the use of Personal Service Companies?”, Mr Barrow answered:
“We suspect a lot will depend on whether we see any high-profile IR35 assessments raised by HMRC in the next 12 months or so.
“Where apparent lack of enforcement is evident, this may lead some to believe that use of PSCs is a lower-risk option. This, together with the recent employers’ NICs rise, the new umbrella tax laws and the proposed guaranteed hours rights for agency workers, may lead to a growth in PSC usage in some sub-sectors.”
‘Purported umbrella’
Both Barrow and Dawson believe that contractors who provide their services through PSCs (Personal Service Companies) are not caught by the new umbrella company tax legislation.
The two advisers say IR35 and OPW (found at Chapters 8 and 10 of ITEPA, respectively) will continue to apply to PSC contractors, provided they are not part of a “purported umbrella” arrangement (soon to be found at Chapter 11 of ITEPA).
Re Legal Consulting, an off-payroll working (OPW) rules advisory, confirmed yesterday in a statement: “Chapters 7 to 10 of Income Tax (Earnings and Pensions) Act 2003 are specifically excluded from Chapter 11.”
‘Not easy to just move an umbrella contractor back to off-payroll’
However, the advisory’s founder Rebecca Seeley Harris, is less sure that the introduction of legislation around umbrella companies equates to the reintroduction of ‘outside IR35’ limited company working.
“That is a possibility”, she told Kingsbridge, “but it’s easier said than done”.
“Why? Well, because if they were previously employed in that role, it’s not as easy to just move a contractor back to off-payroll.”
‘Slight uplift in “outside IR35” roles on back of JSL rules for umbrellas’
Asked for its take, too, the Freelancer & Contractor Services Association (FCSA) implied that, on balance, it’s probably right to expect the volume of PSC roles to marginally increase due to the April 2026 legislation.
In fact, FCSA Chief Executive Chris Bryce told Kingsbridge that the UK contractor industry “may see a slight uplift in ‘outside IR35’ roles” due to the JSL rules.
A former contractor, Mr Bryce cautioned against expecting “a mass move back to engaging PSCs”, however, on the basis that “the OPW rules are still very much in force”.
‘Better the OPW devil you know’
But it’s perhaps due to HMRC’s enforcement of the now eight-year-old framework in the public sector, the four-year-old framework in the private sector, and the 25-year-old framework governing “small company” engagements that, collectively, positions PSCs as potentially the safer option, according to Kingsbridge’s Matt Tyler.
The insurer’s IR35 Consultancy Manger, Mr Tyler explains: “When balancing the risks associated with all types of engagement model, like PSCs but including self-employed, the devil that engagers know – OPW – might be better than the devil they don’t – JSL- or won’t know as well, probably until even well after it’s introduced from April 2026.”
‘As Chapter 11 will toxify umbrella companies, limited company contractors will be less risky’
Martyn Valentine, founder of The Law Place, said: “The draft Chapter 11 will toxify the umbrella industry since employment businesses and clients will not want to incur tax risk.
“In my view, since Chapter 10 takes priority, the combination of Chapter 11 and section 688AB of the ITEPA 2003 – allowing tax paid by a contractor to be offset against a fee-payer’s liability – means limited company contractors are a less risky option for employment businesses and clients.”
Getting IR35 support
Navigating tax legislation and ensuring compliance can be challenging, especially with all the recent announcements and uncertain future changes. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Their team is dedicated to helping businesses understand and adapt to the evolving tax landscape.
They also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Legal Expenses cover, Cyber Insurance and Director and Officer’s Liability.
To find out more, speak to one of their in-house experts today, or get a quote.
Simon Moore, Managing Director at Moore News Ltd
Simon Moore is a journalist with NCTJ-approved journalism training, who has worked inside the newsrooms of local, consumer and national media titles.
He today writes news and features for trade publications specialising in freelancing, small business and the self-employed. Simon’s articles have been linked to by The Daily Telegraph and the biggest newspaper website in the world, MailOnline. He was appointed to be a judge at IPSE Freelancer’s Awards 2023.
