Many organisations introduced blanket "Inside IR35 only" or "umbrella only" hiring policies in 2021. At the time, those decisions were understandable. Faced with new off-payroll working rules, uncertainty over HMRC enforcement, and the perceived consequences of getting IR35 wrong, many boards concluded that paying more for contingent labour was preferable to accepting tax risk.
Five years later, the risk landscape has fundamentally changed. Following the April 2024 tax offset reforms, the financial exposure arising from an incorrect Outside IR35 determination is often less than 10% of contractor spend. Meanwhile, hiring the same contractor on payroll typically carries a cost premium of 20% to 40%.
For many organisations, the additional cost of avoiding IR35 now exceeds the realistic tax exposure associated with an incorrect Outside IR35 determination. The commercial equation has changed, and governance decisions made in 2021 deserve to be revisited in 2026.
The shifting risk landscape
The introduction of the new umbrella tax avoidance rules from April 2026 has shifted significant tax risk onto organisations using umbrella companies. At the same time, the Employment Rights Act 2025 and further reforms expected under the Government's Make Work Pay programme will make hiring workers on payroll more expensive and administratively burdensome.
Layer onto this the prospect of further tax rises, continuing economic uncertainty, and the growing impact of AI, which is reducing demand for permanent roles, and, unsurprisingly, boards are revisiting workforce strategy.
IR35 barriers have reduced
Perhaps the biggest misconception is that today's IR35 landscape is the same one organisations faced in 2021. It isn't.
Factors that originally justified previous blanket policies have changed materially. Many of the barriers to engaging genuine Outside IR35 contractors have been reduced, while the costs and risks associated with payroll and umbrella models have increased.
That is causing many organisations to reconsider whether their existing hiring policies still represent the lowest risk option.
Boards can no longer eliminate risk entirely, because every hiring model now carries legal, tax or employment risk. The question is which model presents the lowest overall risk, at the lowest cost, while remaining firmly within the organisation's control. Increasingly, that may be genuine outside IR35 engagements.
For organisations that conclude Outside IR35 should once again form part of their hiring strategy, the next question is how to reintroduce it without creating unnecessary compliance risk.
How to transition to hiring Outside IR35
Organisations are advised not to immediately convert existing umbrella or agency workers into arrangements using limited companies. That would rightly attract raised eyebrows during an HMRC compliance check.
From years of supporting organisations through HMRC compliance checks, we've learnt that a firm’s objective is to demonstrate a low risk of non-compliance. A low-risk finding can mean enquiries are concluded within months rather than continuing for years.
HMRC asks organisations about worker movements between engagement models. Contractors moving from limited companies onto payroll do not attract attention, but existing umbrella workers switching to limited companies definitely would. That's not to say HMRC scrutiny may conclude favourably, but it would undoubtedly extend a compliance check, increasing professional fees and consuming management time.
For the above reasons, the prudent option is to leave existing umbrella engagements unchanged and allow natural attrition to occur, whilst reintroducing genuine Outside IR35 engagements only for new contractor requirements.
Preparing to hire Outside IR35 again
Reintroducing Outside IR35 engagements does not require complex transformation programmes or expensive consulting projects. It's much simpler and easier than you may think.
From IR35 Shield's experience supporting clients through HMRC enquiries and IR35 tax tribunal litigation, organisations that consistently achieve favourable outcomes share several common characteristics.
- Support from IR35 specialists with extensive enquiry and tribunal experience.
- Contracts drafted around genuine business-to-business relationships and reviewed by your IR35 specialist.
- Robust status determinations using consistent, unbiased methods.
- Trained staff.
- Documented compliance procedures.
Building a compliance framework that withstands HMRC scrutiny allows businesses to engage contractors efficiently.
IR35 Shield has spent years refining a practical, low-friction approach that enables organisations to implement robust governance within weeks. Once established, compliant status assessments can be completed in minutes while organisations retain complete control over hiring decisions and tax risk.
Time to revisit board decisions?
The assumptions that justified blanket hiring policies in 2021 no longer reflect today's legal and commercial reality.
Boards that do not revisit historic decisions will continue to pay a premium for labour that exceeds the risk of hiring off-payroll, restrict themselves to a smaller talent pool, and become less competitive.
Blanket hiring policies may have been the right decision in 2021. The question boards should now ask is whether they remain the right decision in 2026.
