Off-payroll working in the private sector

Price Mann • March 22, 2021

Are you prepared for changes to the IR35 rules?

Exactly a year later than planned, changes to the off-payroll rules – known as IR35 – will take effect in the private sector next month. The emergence of COVID-19 put paid to the changes affecting large and medium-sized private-sector organisations this time last year, but now it’s for real.

They were originally introduced back in 2000 to ensure that someone working like an employee, but through a company, pays similar levels of tax to other equivalent employees.

Non-compliance was forecast to cost the Treasury around £1.3 billion by 2023/24 if not tackled, prompting the Government to reform the rules starting with the public sector from April 2017.

This shifted the responsibility for determining employment status from an individual contractor to the organisation engaging them, with the aim of increasing compliance.

Now it’s the private sector’s turn.

From 6 April 2021, organisations that engage contractors through personal service companies (PSCs) or other intermediaries, such as partnerships or limited liability partnerships, will need to assess whether the rules apply to contracts they enter into.

Where the IR35 rules do apply, the private-sector organisation paying the PSC or other intermediary needs to deduct income tax and National Insurance contributions (NICs) at source before making the payment, and pay employers’ NICs.

With lockdown restrictions still in place as the UK grapples to get on top of COVID-19, hopes were high that the Government might be considering kicking the can further down the road. But that seems to have evaporated with less than a month to go until the changes come in.

Who does this affect most?

The rules will affect medium and large-sized organisations, third parties or intermediaries, and contractors operating in the private sector. Small organisations are exempt. A company is considered ‘small’ if it satisfies two of the following criteria: annual turnover of less than £10.2 million, a balance sheet of less than £5.1m or fewer than 50 staff. HMRC estimates around 60,000 private-sector businesses in the UK utilise contractors, plus 20,000 recruitment agencies, which supply workers who operate through intermediaries like a PSC.

Since announcing the one-year delay in March 2020, HMRC has directly written to more than 40,000 medium-sized organisations and offered one-to-one support for larger businesses.

Employers and other organisations that use private-sector contractors and other forms of contingent labour will have to assume responsibility for determining employment status from next month. They will be responsible for deducting tax and NICs before paying contractors. As many as 170,000 contractors in the private sector who operate through their own PSC will also be affected, along with some charities and third-sector organisations.

The rules only apply to individuals who are considered to be working like employees under the current employment status tests, and do not affect the self-employed. There are some key employment indicators which should be considered in determining status.

Mutuality of obligation

The rules require employees and employers to sign employment contracts that oblige the former to work and the latter to offer and pay them for that work. This is the mutuality of obligation.

There is, however, no ongoing obligation on either side when it comes to self-employed agreements because the self-employed can pick and choose projects with no obligation to accept them. A customer who is looking into hiring a self-employed worker is under no obligation to offer work to keep them busy as they might with an employee.

Substitutions

Private-sector contractors who operate through a limited company and want to remain outside of IR35 after April 2021 should ensure a genuine right of substitution exists throughout each contract. To stay outside of IR35, you need to be able to show HMRC that someone of equal competence, supplied by you, could have carried out the work to the same standard – that they’re paying for a service, not for you specifically. Should a client specifically ask for you to do the work and reject a colleague who is equally qualified, HMRC might interpret this to mean that you are inside IR35.

Other common indicators

Bringing your own equipment is one way of proving to HMRC that you are self-employed, as is having several different customers at the same time.

Similarly, taking on financial risk by being willing to correct work in your own time and at your own cost, or being paid after submitting an invoice following completion of the task, is acceptable proof.

Checking employment status

Following the rollout of IR35 reforms to the public sector in April 2017, HMRC developed an employment status for tax tool (CEST) to determine whether or not a contract falls inside or outside of the rules, which was described as not fit for purpose.

The CEST test was slammed for not taking into account mutuality of obligation, which led to the ICAEW giving it a vote of no confidence. In November 2019, HMRC launched an “enhanced” CEST tool in a bid to address these concerns. Since then, the tax authority claims the CEST test has been used more than 230,000 times by over 160,000 users. Improvements were made to language and presentation, while guidance was added to ensure questions are clearly understood. Crucially, none of those questions are on mutuality of obligation and this is therefore assumed.

Expenses allowance

If the CEST tool deems a private-sector contract to be inside IR35, the contractor’s PSC will still be able to use the 5% expenses allowance of gross annual income earned in respect of calculating the deemed salary. This is to cover any administrative expenses incurred. These expenses include costs relating to premises, admin support, accountancy advice, professional indemnity insurance, computer equipment, training, seeking contracts, printing and stationery, and bank or overdraft interest. You do not need to demonstrate this expenditure. The 5% allowance is not available to employees as an expense they can draw from the company and is not taken into account in respect of calculating corporation tax.

Penalties

From 6 April 2021, accidental breaches of the off-payroll rules in the private sector will not be penalised for the first 12 months – unless there is evidence of deliberate non-compliance. In February 2020, HMRC said it would not open new investigations into PSCs for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour. While this was before the COVID-19 pandemic took hold in the UK, this should remain the case from next month onwards.

Options

With HMRC adopting a light-touch approach towards penalties, you have 12 months before it starts really cracking down on non-compliance. If you haven’t already prepared, start by using the CEST tool as soon as possible to see if any of your 2021/22 contracts will fall within the IR35 rules. If they do fall within the rules, would it be better engaging the contractor as a permanent employee? Another option would be to get to grips with the finer details of your contracts in the event HMRC sends you a full inquiry letter or formal information request. Some limited companies have already closed down before the rules extend to the private sector, while other contractors are deciding to close down their PSC to take on temporary assignments through an umbrella company.

Talk to us about IR35 in the private sector.

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Managing risk in your investment portfolio

By Price Mann • September 17, 2025

Managing risk in your investment portfolio Tips for a balanced investment approach. Investment markets rise and fall, yet the goals that matter to you – retirement security, children’s education, a comfortable buffer against the unexpected – remain constant. Managing risk means giving each goal the best chance of success while avoiding avoidable shocks. You can do that by holding the right mix of assets for your timeframe, using tax wrappers efficiently, and controlling costs and emotions. The 2025/26 UK tax year brings unchanged ISA and pension allowances. This guide explains the key steps, such as diversifying sensibly, rebalancing with discipline, safeguarding cash, and monitoring allowances, so you can stay on track whatever the markets deliver. It is an information resource, not personal advice. Start with a clear plan Define goals and timeframes: Decide what each pot of money is for (for example: house deposit in three years, retirement in 20 years). Time horizon drives how much short-term volatility you can accept. Short-term goals usually need more cash and high-quality bonds; long-term goals can justify more equities. Set your risk level in advance: Ask yourself two questions. Risk capacity: How much loss could you absorb without derailing plans (linked to your time horizon, job security and other assets)? Risk tolerance: How do you feel about market swings? Use a more cautious mix if you are likely to sell in a downturn. Ring-fence cash needs: Keep 3-6 months’ essential spending in easy-access cash before you invest. This reduces the chance of selling investments at a low point to meet bills. Choose simple, diversified building blocks: Broad index funds and exchange-traded funds (ETFs) covering global equities and high-quality bonds provide instant diversification at low cost. Avoid concentration in a single share, sector or theme unless you are comfortable with higher risk. Diversification: Spread risk across assets, regions and issuers Diversification reduces the impact of any single holding. Practical ways to diversify include the following. Assets: Use both growth assets (equities) and defensive assets (investment-grade bonds, some cash). Regions: Combine UK and global holdings. Many UK investors hold too much domestically; global funds spread company and currency risk. Issuers: In bonds, mix UK gilts and investment-grade corporate bonds to diversify credit exposure. Currencies: Equity funds are commonly unhedged (currency moves add volatility but can offset local shocks). For bonds, many investors prefer sterling-hedged funds to lower currency risk. A diversified core helps the portfolio behave more predictably across different market conditions. You can add small “satellite” positions if you wish, but keep any higher-risk ideas to a modest percentage of the whole. Use tax wrappers to reduce avoidable tax and trading frictions Efficient use of ISAs and pensions is one of the most effective risk-management tools because it protects more of your return from tax. ISAs (individual savings accounts) Annual ISA allowance: £20,000 for 2025/26. You can split this across cash, stocks & shares and innovative finance ISAs. Lifetime ISAs (LISAs) are capped at £4,000 within the overall £20,000. Junior ISA (for children under 18): £9,000 for 2025/26 (unchanged). ISAs shield interest, dividends and capital gains from tax. Rebalancing inside an ISA does not create capital gains tax (CGT), which helps you maintain your chosen risk level at lower cost. Note: There has been public discussion about potential ISA reforms, but the current 2025/26 allowance is £20,000. If government policy changes later, we will let you know. Pensions (workplace pension, personal pension/SIPP) Annual allowance: £60,000 for 2025/26 (subject to tapering for higher incomes; see below). You may be able to carry forward unused annual allowance from the three previous years if eligible. Tapered annual allowance: If your adjusted income exceeds £260,000 and threshold income exceeds £200,000, the annual allowance tapers down (to a minimum of £10,000 for 2025/26). Money purchase annual allowance (MPAA): £10,000 for 2025/26 once you’ve flexibly accessed defined contribution benefits (for example, taking taxable drawdown income). Tax-free lump sum limits: The lifetime allowance has been replaced. From 6 April 2024, the lump sum allowance (LSA) caps total tax-free pension lump sums at £268,275 for most people, and the lump sum and death benefit allowance (LSDBA) is £1,073,100. Pensions are long-term wrappers designed for retirement. Contributions usually attract tax relief and investments grow free of UK income tax and capital gains tax while inside the pension. Personal savings: Interest allowances Personal savings allowance (PSA): Basic-rate taxpayers can earn up to £1,000 of bank/building society interest tax free; higher-rate taxpayers up to £500; additional-rate taxpayers do not receive a PSA. Starting rate for savings: Up to £5,000 of interest may be taxable at 0% if your other taxable non-savings income is below a set threshold. For 2025/26, that threshold is £17,570 (personal allowance of £12,570 plus the £5,000 starting rate band). Dividends and capital gains outside ISAs/pensions Dividend allowance: £500 for 2025/26 (unchanged from 2024/25). Dividend tax rates remain 8.75%, 33.75% and 39.35% for basic, higher and additional-rate bands, respectively. The annual capital gains tax (CGT) exempt amount , £3,000 for individuals (£1,500 for most trusts). CGT rates from 6 April 2025: For individuals, 18% within the basic-rate band and 24% above it, on gains from both residential property and other chargeable assets (carried interest has its rate). HMRC examples confirm the £37,700 basic-rate band figure used in CGT calculations for 2025/26. CGT reporting reminder: UK residents disposing of UK residential property with CGT to pay must report and pay within 60 days of completion. Other gains are reported via self assessment (online filing deadline is 31 January following the tax year; if you want HMRC to collect through your PAYE code, file online by 30 December; payments on account remain due 31 January and 31 July). Why this matters for risk: Using ISAs and pensions lowers the drag from tax, allowing you to rebalance and compound returns more effectively. Outside wrappers, plan disposals to use the £3,000 CGT allowance and each holder’s tax bands and consider transfer to a spouse/civil partner (no CGT on gifts between spouses) before selling where suitable. Bonds and cash: Interest-rate and inflation considerations Interest rates: The Bank of England reduced the Bank Rate to 4% at its August 2025 meeting. Bond prices can move meaningfully when rates are high or changing, especially for longer-dated bonds. Consider the duration of bond funds and whether a mix of short- and intermediate-duration exposure suits your time horizon. Inflation: Headline Consumer Price Index (CPI) inflation was 3.6% in the 12 months to June 2025, while the CPI including owner occupiers’ housing costs (CPIH) rose by 4.1%. Inflation affects the real value of cash and bond coupons, and can influence central bank policy, affecting bond prices. Review whether your mix of cash, index-linked gilts and conventional bonds remains appropriate as inflation and interest-rate expectations evolve. Cash strategy: For short-term needs, spread deposits to respect Financial Services Compensation Scheme (FSCS) limits. For longer-term goals, excessive cash can increase the risk of falling behind inflation. Control costs and product risk Keep fees low: Ongoing charges figures (OCFs), platform fees and trading costs compound over time. Favour straightforward funds and avoid unnecessary expenses. Understand the product: Structured products, highly concentrated thematic funds or complex alternatives can behave unpredictably. If you use them, size them modestly within a diversified core. Use disciplined trading rules: Avoid frequent tinkering. Set rebalancing points (see below) and resist acting on short-term news. Rebalancing: Why, when and how Markets move at different speeds. Without rebalancing, a portfolio can “drift” to a higher or lower risk level than you intended. Follow this simple rebalancing framework. Invest in something that will rebalance automatically (i.e. certain ETFs) Frequency: Review at least annually. Thresholds: Rebalance when an asset class is 5 percentage points away from target (absolute) or 20% away (relative). Tax-aware execution: I prefer to rebalance inside ISAs and pensions. Outside wrappers, use new cash or dividends where possible; then consider selling gains up to the £3,000 CGT allowance and factoring in dividend and savings allowances. Implementation tip: If markets are volatile, use staged trades (for example, three equal tranches a few days apart) rather than one large order. Safeguard cash and investments with the right protections FSCS protection (cash deposits): Up to £85,000 per person, per authorised bank/building society group is protected. Temporary high balances from specific life events can be covered up to £1m for six months. The Prudential Regulation Authority has consulted on raising the standard deposit limit to £110,000 and the temporary high balance limit to £1.4m from 1 December 2025 (proposal stage at the time of writing). FSCS protection (investments): If a regulated investment firm fails and your assets are missing or there is a valid claim for bad advice/arranging, compensation may be available up to £85,000 per person, per firm. This does not protect you against normal market falls. Operational risk checks: Use Financial Conduct Authority authorised providers, check how your assets are held (client money and custody), enable multi-factor authentication, and keep beneficiary and contact details up to date. Currency risk: When to hedge For equities, many long-term investors accept currency fluctuations as part of the growth engine, since sterling often weakens when global equities are stressed, partly offsetting losses. For bonds, many prefer sterling-hedged funds to keep defensive holdings aligned with sterling cashflow needs. A blended approach works: unhedged global equities plus mostly hedged bonds. Behavioural risks: Keep decisions steady Common pitfalls include chasing recent winners, selling after falls or holding too much cash after a downturn. Tactics to keep you on track include: automate contributions (regular monthly investing), which spreads entry points write down rules (what you will do if markets fall 10%, 20%, 30%) separate spending cash from investments so you do not sell at weak prices to fund short-term needs use portfolio “buckets” in retirement. Retirement planning: Sequence-of-returns risk and withdrawals If you are drawing an income from investments consider the following. Hold a cash buffer (for example, 12–24 months of planned withdrawals) to avoid forced sales during sharp market falls. Be flexible with withdrawals: Pausing inflation-indexing or trimming withdrawals after a poor market year can help portfolios last longer. Use tax bands efficiently: Consider the order of withdrawals (pension, ISA, general investment account) to make use of personal allowance, PSA, dividend allowance and the CGT annual exempt amount. Take care around the MPAA if you are still contributing to pensions after accessing them. Putting it together: A repeatable checklist Confirm goals and time horizons. Check emergency cash (3-6 months). Map your target asset allocation. Use wrappers first: Fill ISAs and workplace/personal pensions as appropriate. Keep costs low: Prefer broad index funds/ETFs. Set rebalancing rules: Annual review + thresholds. Document tax items: Monitor dividend/CGT use; note 60-day property CGT rule; plan for 31 January/31 July self assessment dates if relevant. Review protection limits: Spread larger cash balances across institutions in line with FSCS; note proposed changes for late 2025. Schedule an annual review to update assumptions for interest rates, inflation and any rule changes. Get in touch if: you are unsure how to set or maintain an asset allocation you plan to draw income and want to coordinate wrappers and tax bands you expect large one-off gains or dividends and want to plan disposals or contributions you have concentrated positions (employer shares, single funds) and want to reduce single-asset risk tax-efficiently you are considering more complex investments. Wrapping up Risk management is not a one-off task but an ongoing discipline. By defining clear objectives, spreading investments across regions and asset classes, using ISAs and pensions to shelter returns, and reviewing allocations at least annually, you create a framework that limits surprises and keeps decisions rational. Document key dates – self assessment payments on 31 January and 31 July, the 60-day CGT rule for property, and the annual ISA reset on 6 April – so tax never forces a sale at the wrong time. Check deposit limits and platform safeguards for peace of mind, and keep a written record of your rebalancing rules to prevent knee-jerk trades. If life events or regulations change, revisit your plan promptly. A measured, systematic approach lets your portfolio work harder while you stay focused on the goals that matter most. Important information This guide is information only and does not account for your personal circumstances. Past performance is not a guide to future returns. The value of investments and income from them can fall as well as rise, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. If you need personalised advice, please contact a regulated financial adviser. If you’d like advice on managing your portfolio, get in touch.