Public bodies have been operating the reformed off-payroll working rules since 2017, but the compliance risk has continued to develop.

Through current casework, the PSTAX Employment Taxes team has received confirmation that HMRC is opening new IR35 investigations as part of a wider campaign. Organisations should therefore be prepared to explain not only individual status decisions, but also the governance, training and processes behind them.

At the same time, new joint and several liability rules have changed the level of PAYE risk within some labour supply chains.

The two areas are governed by different rules, but they both require public bodies to have a clear understanding of how workers are engaged, who is involved in the contractual chain and where responsibility for tax compliance sits.

What is HMRC looking at under IR35?

The off-payroll working rules apply where an individual provides services through their own intermediary, normally a personal service company, and would have been regarded as an employee for tax purposes had they been engaged directly.

In most public sector engagements, the client is responsible for deciding the worker’s employment status for tax. Where the rules apply, the client must produce a Status Determination Statement setting out its decision and the reasons for it.

An HMRC review may go beyond checking whether a CEST assessment has been completed. It can examine:

• how potentially affected engagements are identified
• who makes status decisions
• whether decision-makers understand employment status principles
• whether contractual terms reflect the actual working arrangements
• whether determinations are reconsidered when roles or arrangements change
• how disagreements are managed
• what records are retained
• whether the organisation has taken reasonable care

Training is an important part of that framework. HMRC says organisations within scope need robust training for employees who understand and operate the rules. Its guidance expects training to cover the off-payroll rules, contractual chain responsibilities, employment status principles and the systems and processes used to make informed determinations.

What has changed for umbrella company arrangements?

The off-payroll working rules will often not apply where a worker is genuinely employed by an umbrella company and PAYE is being operated by that employer.

That does not, however, mean the arrangement is free from employment tax risk.

From 6 April 2026, joint and several liability applies to certain labour supply chains involving umbrella companies. The agency with the contract to supply the worker to the end client can be held responsible alongside the umbrella company for PAYE underpayments. The end client may be liable where there is no agency, where the relevant agency is overseas or where it is connected with the umbrella company.

The rules apply to new and existing labour supply chains and to relevant payments made to workers on or after 6 April 2026. HMRC can recover an underpayment from the agency or applicable end client where the umbrella company has not operated PAYE correctly.

This makes it increasingly important for public bodies to understand the full supply chain rather than relying solely on assurances that a worker is being paid through PAYE.

Is joint and several liability part of IR35?

No. Joint and several liability and IR35 are separate sets of rules.

IR35 generally concerns workers providing services through their own intermediary and whether they should be treated as employed for tax purposes.

The joint and several liability rules concern PAYE compliance where workers are supplied through umbrella company arrangements.

The practical connection is that organisations must first identify the type of arrangement they are dealing with. An incorrect assumption at the start can lead to the wrong process being followed, the wrong checks being completed or an important risk being missed.

Hiring managers do not need to become tax specialists, but they should be able to recognise:

• whether a worker is operating through a personal service company
• whether an umbrella company is involved
• whether an agency or other labour supplier sits within the chain
• who is responsible for the status decision
• when specialist support is needed

Why responsibility cannot sit with one team

Contractor arrangements often cross several departments.

Procurement may appoint the agency. A hiring manager may agree how the work will be performed. HR may advise on the role, while payroll or finance deals with payments and tax treatment.

This division of responsibility can create gaps when teams use different terminology, retain different information or assume another department has completed the necessary checks.

A strong process gives each person a clear understanding of their role. Training should therefore reach the people who make or influence decisions, rather than sitting only with the central tax or payroll team.

Relevant learners may include:

• hiring and service managers
• procurement and commercial teams
• HR
• payroll
• accounts payable and finance
• staff responsible for agency frameworks
• colleagues overseeing major projects or transformation programmes

Updated PSTAX IR35 eLearning

PSTAX’s specialist IR35 eLearning reflects the compliance issues public bodies face now.

The two-module course covers the off-payroll working rules, employment status principles, responsibilities within a contractual chain and the processes needed to support informed decisions.

It now also includes a dedicated section on joint and several liability, helping learners understand the difference between personal service company engagements, umbrella company arrangements and other labour supply routes.

The course is accessible for learners with different levels of experience and is designed for hiring managers and teams in HR, payroll, procurement and finance. A certificate is issued following successful completion, providing a record of the training undertaken.

What should public bodies do next?

Organisations should review whether:

1. all relevant teams understand the difference between IR35 and umbrella company arrangements
2. current training reflects the rules applying from 6 April 2026
3. hiring managers know how and when to escalate an engagement
4. contractual chains are visible and recorded
5. existing contractor arrangements are reconsidered when circumstances change
6. training completion can be evidenced

With HMRC opening new IR35 investigations and the PAYE risk attached to umbrella company chains increasing, this is a sensible time to refresh staff awareness.

To receive details of the updated PSTAX IR35 eLearning, click here or email Alex Gardner at alex.gardner@pstax.co.uk.

FAQs

Does IR35 apply to workers employed by an umbrella company?

Usually, the off-payroll working rules will not apply where the worker is genuinely employed by an umbrella company that operates PAYE. However, the organisation should establish the true nature of the arrangement rather than relying solely on its description.

Can a public body be liable for an umbrella company’s unpaid PAYE?

Yes, in specified circumstances. An end client can be liable where there is no relevant agency, where the agency is overseas or where it is connected with the umbrella company.

Who should complete IR35 training?

Training should include employees who need to understand or operate the rules. For a public body, that may include hiring managers and colleagues in procurement, HR, payroll and finance.

Does completing training remove an organisation’s tax risk?

No. Training supports stronger and more consistent processes, but it must be accompanied by appropriate procedures, accurate information, documented decisions and ongoing review.