IR35 determines how a contract is taxed, not whether it is legitimate. Paid through an umbrella, you are on PAYE — which removes an entire category of risk.
IR35 is a set of rules that ask a simple question: if your limited company did not exist, would you look like an employee of the end client? If the answer is yes, the contract is "inside IR35" and the income must be taxed as employment income.
The rules target disguised employment — contractors working in all but name as employees, while taking a tax-efficient salary-and-dividends route. They are not a judgement on whether contracting is a real way to work.
Since April 2021, for medium and large end clients, the client determines the status of the engagement and issues a Status Determination Statement. Small clients are exempt, and the contractor's own company remains responsible.
What matters in practice is the working practices on the assignment: whether the client controls how and when you work, whether you can send a substitute, and whether you are integrated into their organisation.
This is the part that is often misunderstood. Under an umbrella company you are an employee, paid through PAYE with income tax and National Insurance deducted at source and reported to HMRC in real time.
There is no salary-and-dividends structure and no intermediary taking a tax-advantaged cut. That means the disguised remuneration exposure IR35 exists to address simply does not arise. Using an umbrella does not create an IR35 problem, and it does not solve one either — it makes the question largely moot for the way you are paid.
Inside IR35 and paid through an umbrella: straightforward and compliant. Inside IR35 through your own limited company: permitted, but the client bears the liability and many will not engage on those terms.
If a provider advertises a retention rate close to 90%, ask how employer's National Insurance at 15% is being funded. It cannot come from nowhere. Historically, the schemes that achieved those numbers — loans, offshore trusts, disguised remuneration arrangements — resulted in contractors receiving large tax bills years later, with interest and penalties.
The compliant position is less dramatic: contract value, minus employer costs, minus the umbrella fee, taxed as salary. That is what our calculator shows you, and it is what your payslip will say.
If a provider will not answer those questions plainly, that is the answer.
We will talk through the status of your engagement and what it means for how you are paid. Free consultation, no obligation. Get in touch.
Ask us anything about IR35, umbrella payroll or your own contract. We would rather you understood it than took our word for it.