For contractors, navigating the IR35 legislation and choosing the right way to operate can be challenging.

Many contractors, faced with roles that fall inside IR35, turn to umbrella companies to continue working. However, this is often far from the best solution.

While umbrella companies promise convenience, the reality is they can erode your earnings, reduce financial control, and expose you to unnecessary risks.

If you want to maximise your income, securing an outside IR35 contract and operating through your own limited company remains the best option.

Why umbrella companies aren’t as good as they seem

At first glance, umbrella companies appear to offer a hassle-free way to contract – they handle tax deductions and payroll.

However, the downsides often outweigh any convenience.

Reduced take-home pay

When you work under an umbrella company, you are effectively an employee, but without the benefits of full employment. The umbrella company deducts PAYE tax, employer and employee National Insurance Contributions (NICs), and their own fees before you receive your income.

A contractor operating through an umbrella typically takes home 20–30 per cent less than one working through a limited company in an outside IR35 role. Over a year, this could mean losing tens of thousands of pounds in unnecessary deductions.

Less control over tax planning

Unlike running your own limited company, where you can pay yourself via a mix of salary and dividends to optimise tax efficiency, umbrella companies operate on a strict PAYE model. This means you have no flexibility over how your income is taxed, resulting in higher deductions.

Lack of financial security

Not all umbrella companies are compliant, and many have been caught mismanaging contractor funds or engaging in questionable practices. If an umbrella company collapses, contractors lose unpaid earnings, and in some cases, face liability for unpaid tax and holiday pay.

Why securing an outside IR35 role is the best option

The best way to protect your income and maintain control over your finances is to secure a contract that falls outside IR35.

This allows you to operate through your own limited company, benefiting from:

• Higher take-home pay – Keeping a larger share of your income compared to an umbrella company.
• Tax efficiency – The ability to structure your income using a mix of salary and dividends.
• Control over your business – Retaining decision-making power rather than handing it over to an umbrella.
• Limited liability protection – A safeguard against personal financial risk.

Don’t let an umbrella company hold you back

Umbrella companies limit your earning potential and reduce tax efficiency.

However, if you are serious about maximising your income, securing an outside IR35 role and operating through a limited company is the way forward.

With the Self-Assessment deadline now behind us, contractors should remain extra vigilant against phishing scams and fines.

HM Revenue & Customs (HMRC) has reported a record-breaking number of Self-Assessment tax returns submitted before the 31 January deadline, with over 11.5 million taxpayers managing to file on time.

However, for many, this came as a last-minute scramble, with nearly 780,000 submissions made on deadline day alone.

Some 33,000 taxpayers left it until the final frantic hour between 11 pm and midnight, while the busiest period was between 4 pm and 5 pm, when 61,549 returns were submitted just before the end of the working day.

The cost of missing the deadline

Despite the high number of timely submissions, 1.1 million taxpayers missed the cut-off, immediately incurring a £100 fine.

However, this is just the beginning of the penalties for late filers:

• £10 per day after three months, up to a maximum of £900
• A further 5 per cent of the tax due or £300 after six months, whichever is greater
• An additional 5 per cent of the tax due or £300 after 12 months

Separate late payment penalties and interest charges will also apply for unpaid tax bills. With HMRC expected to collect at least £110 million in fines, the cost of missing the deadline can quickly escalate.

The rise of phishing scams

Every year, HMRC sees a spike in fraudulent activity following the 31 January deadline as scammers attempt to exploit taxpayers who are expecting tax refunds or fear penalties for late filing.

Fraudsters are becoming increasingly sophisticated, making it crucial to recognise the warning signs and protect yourself from potential financial loss.

How do phishing scams work?

Phishing scams typically involve emails, text messages, or phone calls that claim to be from HMRC.

They often:

• Promise a tax refund and request personal or bank details.
• Demand immediate payment for an “unpaid tax bill” to avoid legal action.
• Ask for HMRC login credentials under the pretence of verifying information.
• Contain links to fake HMRC websites that look legitimate but are designed to steal your information.

HMRC has confirmed that it will never ask for payment details or personal information via email or text.

If you receive a message that seems suspicious, do not respond, click any links, or provide any details.

Stay secure and stay informed

Fraudsters are becoming increasingly sophisticated, but by staying alert and following best practices, you can protect yourself from phishing scams. If you’re ever unsure about a tax-related message, consult us before taking any action.

The promise of higher take-home pay can be tempting, especially in a tax system that already feels complex and burdensome.

However, for contractors, falling into a tax avoidance scheme – whether knowingly or not – can have serious consequences.

Already in 2025, HMRC has identified five new tax avoidance schemes.

It is, therefore, worth reinforcing the message that these schemes are still widespread, particularly in the umbrella company sector.

If you contract through an umbrella company, it is essential to understand the risks of tax avoidance schemes, how to spot them, and why staying compliant is always the best option.

How do tax avoidance schemes work?

Tax avoidance schemes artificially structure income to reduce or eliminate tax liability. These schemes are often marketed as “HMRC-compliant” or “fully legal,” but this is rarely the case.

A common method used is disguised remuneration, where a portion of a contractor’s income is paid through loans, advances, or other non-taxable methods rather than salary. For example:

• A contractor is told they will receive a small salary taxed under PAYE, but the rest of their income will be paid as “bonuses,” “loans,” or “credits”, supposedly exempt from tax.
• The umbrella company deducts minimal tax but promises higher take-home pay, claiming their structure is approved by HMRC.
• In reality, all earnings should be taxed as salary, and when HMRC investigates, the contractor is held responsible for unpaid taxes.

Why you should avoid these schemes

Whilst it may seem fairly obvious why these schemes should be avoided, here are a few takeaways to consider:

• You, not the scheme operator, are liable for unpaid tax – HMRC takes the position that contractors are responsible for their own tax affairs. If you unknowingly enter a tax avoidance scheme, you cannot pass the blame to the umbrella company or agency that introduced you to it. You could face:
• A large tax bill covering unpaid Income Tax and National Insurance Contributions (NICs).
• Interest and penalties on the amount owed.
• Potential legal action if HMRC believes there was deliberate tax evasion.
• Tax schemes rarely withstand HMRC scrutiny – HMRC is constantly identifying and shutting down tax avoidance schemes, adding new non-compliant providers to its official watchlist. Even if a scheme seems legitimate today, there is a strong chance that HMRC will investigate it in the future, leaving you exposed.
• Reputational damage and career impact – If you are caught up in a tax avoidance scheme, it could affect future contracts. Some businesses are already conducting supply chain due diligence to ensure contractors comply with tax rules. Being linked to a tax scheme could make you less attractive to future clients.

How to protect yourself

If you operate through an umbrella company, be cautious of any scheme offering unusually high take-home pay. A legitimate umbrella company will:

• Pay your entire salary through PAYE, with normal tax deductions.
• Provide a transparent payslip showing tax and NIC deductions.
• Not offer payments via loans, credits, or other tax-free arrangements.

Staying compliant is always the best approach

While tax avoidance schemes may promise quick financial benefits, the long-term risks far outweigh any short-term gains.

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

We are fast approaching the deadline for filing your Self-Assessment tax return, which is Friday 31 January 2025.

If you would like Cogent to prepare your tax return, please complete and return the Self-Assessment Tax Return Questionnaire for the tax year 2023/24 as soon as possible.

As we are now very close to the key 31 January date, we cannot guarantee to complete the tax return to meet the deadline, so it is important that you complete the questionnaire as soon as possible.

Outstanding Balancing Payments for 2023/24 and the First Payment on Account for 2024/25 are also due and payable by 31 January 2025 and interest will be charged on late payment.

You can request a questionnaire for 2023/24 by emailing tax@cogentaccountants.co.uk

The standard charge, including VAT, for a basic tax return, is £250 as we have passed the deadline to receive this service at a discounted rate. Please note, more complicated tax returns, where additional work or supplements are required, will be subject to additional charges.

If you have a second shareholder, they may also need to file a tax return, even if they haven’t previously. For further advice, please contact our Tax Department.

Penalties for late filing of tax returns can be as much as £1,600, even when there is no tax due, so please ensure your tax return is filed on time, whether you ask us to prepare it for you, or you have made other arrangements.

Please return your completed questionnaire together with any attachments by email only to our Tax Department – tax@cogentaccountants.co.uk

You are required to file a tax return if:

• You have been asked to file one by HMRC
• You have a tax liability for the year (e.g. additional and higher rate tax, student loan in repayments, high-income child benefit charge or if you have any income which has not been taxed at source)
• You have a new source of income that needs to be declared.

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE**

With the dust settling on last year’s Budget, it’s time for limited company contractors to look ahead with optimism.

We know that recent history and the introduction of IR35 to the private sector has made things more challenging, but the landscape for operating under a Personal Service Company (PSC) via a limited company structure is getting brighter by the day.

Here is why we think contractors should reconsider their approach in the year ahead.

The turning tide of taxation and legislation

Recent developments suggest a shifting focus that could revive the appeal of the limited company model for contractors.

The Autumn Budget introduced measures that, although initially daunting, pave the way for a resurgence in the attractiveness of working through a limited company.

Positive changes for end-clients

Possibly one of the biggest incentives to take on contractors via a limited company is the change to National Insurance.

From April 6th, 2025, end-clients will face higher employer National Insurance contributions for their permanent staff.

This increase might prompt a reconsideration of engaging contractors through more cost-effective limited company arrangements.

Potential reform of IR35

With the government revisiting the effects of IR35 and related legislation, there’s also potential for what could be seen as a fourth phase of IR35 reform.

This time, the focus might shift towards a more refined, fair approach to contracting. It is early days in regards to changes in this area, but the evidence is growing on its impact on a wide variety of sectors.

Optimism for the contracting sector

When these factors combine, they amplify the potential benefits of contracting via a limited company in 2025 and beyond.

This isn’t just a temporary shift. It’s a substantial move towards a more structured and favourable environment for limited companies.

The outlook for 2025 is promising, signalling that it might just be time to reconsider the LTD route for its potential benefits and the new opportunities it may bring.

Let’s embrace this change and make the most of the new contracting landscape!

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

If you would like Cogent to prepare and file your 2023/24 tax return and you have not yet sent us your completed Self-Assessment Tax Return Questionnaire, you will need to do so by 31 December 2024 to benefit from our discounted fee.

If you have a second shareholder, they may also need to file a tax return, even if they haven’t previously. For further advice, please contact our Tax Department.

The standard charge including VAT for a basic tax return is £250. Questionnaires received by 31 December 2024 will receive a discount on the basic tax return, charged at £130.

Any questionnaires received after 31 December 2024 will be charged at the full rate of £250.

Please note that more complicated tax returns where additional work or supplements are required, will be subject to additional charges.

Our deadlines have been set so that we can complete your return in time to meet the HM Revenue & Customs’ (HMRC) online filing deadline of 31 January 2025.

Penalties for late filing of tax returns can be as much as £1,600, even when there is no tax due, so please ensure your tax return is filed on time, whether you ask us to prepare it for you, or you have made other arrangements.

You can request a questionnaire for 2023/24 by emailing tax@cogentaccountants.co.uk

Please return your completed questionnaire together with any attachments by email only to our Tax Department – tax@cogentaccountants.co.uk

You are required to file a tax return if:

• You have been asked to file one by HMRC
• You have a tax liability for the year (e.g. additional and higher rate tax, student loan in repayments, high-income child benefit charge or if you have any income which has not been taxed at source)
• You have a new source of income that needs to be declared.

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

With the Autumn Budget now delivered, the Labour Government has introduced a range of measures designed to address the estimated £22 Billion “black hole” in public finances.

Among the headline announcements is an increase in employer’s National Insurance contributions (NICs), a move that has sparked considerable debate among businesses and contractors alike.

While the rise in employer’s NI aims to bolster the Treasury’s coffers, its impact on businesses could lead to a significant shift in workforce strategies, with many organisations predicted to turn to off-payroll workers to manage costs.

Why off-payroll workers may become more attractive

For businesses, the increased financial burden of employer’s NICs makes off-payroll arrangements, such as engaging contractors, an appealing alternative to hiring permanent employees.

Unlike traditional employees, off-payroll workers do not incur ongoing costs such as employer’s NI or pension contributions.

Businesses engaging contractors on a project basis gain the flexibility to scale their workforce up or down as needed without the commitment of long-term salaries.

This “talent on demand” approach not only allows organisations to control costs more effectively but also provides access to highly skilled professionals who can deliver specific expertise on a short-term basis.

The benefits of flexibility and cost control

The savings associated with hiring off-payroll workers can be significant. For many businesses, avoiding the rising cost of employer’s NICs and other overheads tied to permanent staff offers a compelling reason to embrace flexible working arrangements.

Off-payroll workers provide a dual advantage:

• Cost efficiency: No ongoing salary commitments, reduced overheads, and no employer’s NI.
• Agility: The ability to respond to shifting demands and projects without the constraints of a fixed workforce.

For businesses facing tight margins, particularly SMEs, these benefits could make the difference between thriving and merely surviving in the current economic climate.

Challenges for contractors

While businesses may see advantages, the picture is more nuanced for contractors. Day rates for off-payroll workers may come under pressure as companies seek to minimise overall expenditure.

Contractors may also need to demonstrate their value and negotiate effectively to secure fair compensation that reflects their expertise and contribution.

However, contractors operating as sole traders or via personal service companies (PSCs) stand to benefit from increased demand as businesses shift away from traditional employment models.

A changing workforce landscape

The rise in employer’s NICs highlights a growing trend: businesses are prioritising flexibility and cost management.

For contractors, this could mean increased opportunities, but also the need to adapt to a more competitive environment.

The shift toward off-payroll working represents a significant opportunity for contractors to showcase their value, while businesses can leverage the expertise of a more agile workforce.

The Autumn Budget has been unveiled, and while it didn’t bring any major surprises for housing or mortgages, it’s clear there are significant changes ahead for property owners, investors, and those navigating the mortgage market. If you’re a contractor, here’s a breakdown of the key announcements and how they might affect you.

Stamp Duty Land Tax (SDLT): Higher rates for second homes and investment properties

One of the major updates is an increase in Stamp Duty for second homes and investment properties.

The additional SDLT surcharge has risen by two per cent, bringing the lower band surcharge from three per cent to five per cent.

This increase will likely apply across all SDLT bands, although the Government’s documents are still being clarified. What this means for contractors looking to invest in property is straightforward: higher upfront costs when purchasing a second home or buy-to-let property.

Capital Gains Tax (CGT): Frozen for property, but increased for shares

The good news for property investors is that CGT rates on second homes and investment properties have not increased. However, for contractors with diversified portfolios, there are changes to note.

CGT on shares and other non-property assets has risen:

• Lower rate: from 10 per cent to 18 per cent
• Higher rate: from 20 per cent to 24 per cent

If you’re considering selling shares or other assets, it’s essential to factor in these higher rates and the potential impact on your tax bill.

First-time buyers and Stamp Duty relief

Unfortunately, there was no extension to the Stamp Duty relief freeze for first-time buyers, which means current reliefs will end in April 2025.

From that point, first-time buyers will pay Stamp Duty at the same rates as other buyers.

If you’re a contractor saving for your first home, the next year offers a window of opportunity to take advantage of the existing reliefs before they expire.

A boost for homebuilding and social housing

The Budget allocated £3.1 billion to new-home construction, with an additional £3bn to support smaller developers and builders.

For contractors in the construction or development sectors, these investments could mean new opportunities in housing projects, particularly in areas like Liverpool and Cambridge, where funding has been confirmed.

Mortgage rates and borrowing costs

In the immediate aftermath of the Budget, swap rates – which influence lenders’ mortgage rates – have risen.

Combined with global economic pressures and potential increases in borrowing costs, this could put downward pressure on hopes for further mortgage rate cuts.

If you’re considering a remortgage or purchasing property, now may be a good time to lock in current rates before any further increases take hold.

What does this mean for contractors?

The Autumn Budget has created a mix of challenges and opportunities for contractors:

• Higher costs for property investment due to increased SDLT rates
• Opportunities in new housing projects and smaller development schemes
• Changes to tax planning, particularly for those with diversified portfolios

The property market is always subject to change, but with careful planning, contractors can still make the most of their opportunities.