Changes to IR35 contractor legislation. Action required.

Changes to the IR35 tax legislation for contractors that take effect in April 2020 are due to bring significant changes to how organisations utilise off-payroll staff and shift the burden of liability to end-user organisations. 

Following on from similar changes in the public sector, HM Revenue & Customs have a wide range of businesses within their sights and know how to challenge organisational practice to extract large sums where they believe disguised employment continues to operate.  

Recent high-profile tax activities such as the investigation into the tax affairs of 1,500 contractors working at pharmaceutical giant GSK show the clear intent to make contractors and corporates pay the correct amount of tax. 

So how should organisations respond? 

Melius’ Director, David Morley explains that broadly organisations have three choices:

  1. Absorb higher costs associated with employing contract staff through intermediaries in order to maintain the take-home pay packets of highly skilled individuals;
  2. Take contract workers directly onto payroll with the accompanying PAYE, National Insurance, pension and benefits implications; or
  3. Change how services are procured and move towards more outcome-based engagements with looser arrangements regarding direction and control, and clear means of substitution, rather than employment-lite style engagement of single contractors.

David explains that how organisations choose to proceed will depend on the relative scarcity of talent, budget constraints and the impact on business-critical projects if current contractors leave the organisation. 

“Contractors with scarce skillsets will continue to hold the upper hand in any negotiation and organisations need to think carefully before implementing new ways of working. A blanket no to off-payroll working is likely to significantly diminish any organisations access to talent.”

HMRC offer a self-assessment tool ( to help organisations and contractors determine the applicability of these new regulations, but directly engaging with your current contractors and supplying organisations is equally important for any business that uses off-payroll contractors as part of its contingent workforce.

If your organisation would benefit from a greater understanding of what the changes to IR35 could mean for your business and how to intelligently mitigate the risks involved, talk to Melius.