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THE change in IR35 (off-payroll) rules in the UK, introduced to the private sector in 2020, was not welcomed by the communication, engagement and change industry, writes Virginia Hicks. This is an industry which has long been populated by contractors using their own limited companies to cover vacancies or maternity leave, support growth and recovery through structural, cultural or process change, or to set up and/or develop capability or build new functions. Contractors saw their earnings squeezed (typically by 20-25 per cent) and costs went up for clients. And the administration before, during and since the transition has been intense for all parties.

These rules were introduced by the UK government to address falling revenue from Pay As You Earn taxation (PAYE). Over time, there has been a dramatic shift towards self-employment; from less than one million in 1999 to nearly five million now; that’s around 14 per cent of the working population. The potential income from the new ‘off-payroll’ regulations has been quoted as £1.3 billion, which would go some way towards offsetting the drop in PAYE.  

Why the old ways were so popular 

Originally, beneficial tax advantages were introduced for the self-employed because the government wanted to encourage and reward those who were prepared to ‘go it alone’, be entrepreneurial and potentially create jobs. But, over time, the government became concerned at the number of people setting up their own Personal Service Companies (PSCs) and contracting and invoicing through these companies.  

Clients would pay PSCs without being required to deduct taxes as they would for salaried employees and they did not have to provide rights and benefits to contractors that employees enjoyed like healthcare, pension, paid holiday and redundancy pay. More importantly, clients did not have to pay employer’s national insurance at 13.8 per cent.  

There were several benefits to contractors by billing through a PSC. They claimed expenses which they could offset against pre-tax income, there was a cashflow benefit since they paid corporate tax once a year and, usually, they paid themselves a low salary and the balance of income was earned through company dividends which were not taxed until 2016.   

‘Off payroll’ means all contractors are now ‘deemed employees’ unless their client determines otherwise with a formal role assessment. Even then, if determined ‘off payroll’, a Statement of Works is required which clarifies the deliverables in a similar way to how agencies take a brief from a client. 


There are some legitimate exemptions where contractors can continue to work through their PSC, such as when the client is deemed a small company (under 50 employees). 

And there are anomalies too; we have seen the same role in different companies assessed by clients as outside by one, but inside by another. This confirms that the Revenue assessment tool – CEST – used by many is flawed or, at least, ambiguous. Several huge government bodies have had to pay millions in retrospective tax bills, interest and penalties despite using the government sponsored CEST assessment tool and getting support from the Revenue! Dave Chaplin, CEO of compliance solution IR35 Shield said: “These government casualties serve to highlight that CEST exposes those who use it rather than provide them with any protection.”

The choice on how to assess with confidence seems clear with clients and candidates turning to professional advisers like IR35 Shield and Qdos for advice and comprehensive and reliable assessment and insurance. 

Many candidates have hotly debated with me that they are always working outside the regulations. While I have great empathy with contractors to this point, regarding the rules, the substitution clause is an obvious blocker. I don’t see how a communication interim would send a peer in to cover their work. Some clients will say that this is possible, but I doubt it will ever be tested by them. In reality, I would expect those clients would wait for their hired interim to return to work or seek a new hire. A communications agency can substitute people on an account and clients will be flexible about who they work with through an agency. With an interim however, the client hires an individual contractor for their experience, skills and fit in the team and the culture. Quoting Dave Chaplin again: “The belief that a substitution clause negates the ‘personal service’ test when examining status is a mistake and myth that has developed over the last 20 years”. 

The impact on temporary resourcing

The change in legislation has undoubtedly been a bitter pill for the interim community and for companies who need temporary staff. We are seeing contractors adapt and some are more open to fixed-term or permanent contracts, but the uncertainty around fair day rates and national insurance contributions continues.  

This has been a dramatic shift for contractors and clients who resource on a temporary basis. Clients must assess the status of a contractor engagement and contractors are potentially in a weaker negotiating position on rates and must pay higher tax through payroll or an umbrella company. Clients must also pay the employer’s NIC for contractors (a not insignificant extra at 13.8 per cent). 

How the future is looking

We wonder how the market will adjust if the high demand for temporary talent continues; currently there is an upturn which has not been seen across the UK economy since 1998. There is huge recruitment underway for business change both in-house and via specialist consultancies. Perhaps the pressure on talent will drive a further shift as clients compete for temporary communications, engagement and change specialists to drive recovery and growth. 

As a final word, even if you have an ‘outside determination’ you still need to gather evidence while in role as the Revenue is known to retrospectively challenge assessments. Some candidates who are deemed ‘outside’ will get appropriate insurance to ensure they are not exposed by a later assessment which gives another determination. Given the ambiguity out there, there is no doubt that’s a good idea. 

This article was originally published in September 2021 and edited for Strategic. The full article can be read here.

Virginia’s 20 year career in communications began in the high street retailer, Radio Rentals, followed by Glaxo Wellcome, Marks & Spencer, Network Rail & Unilever before she moved into the interim business as a recruiter.  Since 2011, Comma Partners has been owned by Virginia who has seen her initial list of candidates grow from 25 into hundreds, with an impressive client list of FTSE100, top-end communications consultancies and professional services.  She was joined by Andy Macleod (ex-Gallagher) earlier this year.