Will 2026 see the return of the ‘Outside IR35’ contractor?

As the UK approaches the start of the 2026/27 tax year, organisations and recruitment agencies are preparing for a significant compliance shift, one that, while not altering IR35 legislation itself, is expected to influence how businesses engage contractors.

These changes aim to clamp down on tax non-compliance within umbrella company supply chains and ensure that the correct amount of Pay-As-You-Earn (PAYE) and (National Insurance Contributions) NIC are paid to HMRC.

A reshaping of responsibility, and potentially contractor hiring too

It's all thanks to the Revenue's new Joint & Several Liability (JSL) rules, effective from April 6th 2026, that will target umbrella company supply chains but also reshape responsibility and potentially commercial decision-making too, across the contract labour market.

As the title of this viewpoint article questions, writes David Taylor, group managing director of First Point Group, could the changes triggered by these JSL rules even prompt a renewed appetite for 'Outside IR35' contract work?

What are the JSL rule changes from April 6th 2026?

From 2026-27, the government will introduce new compliance measures for labour supply chains involving umbrella companies. These are the Joint and Several Liability (JSL) measures, and they're part of the Finance Bill, which just passed its 'First Reading' in parliament.

Under JSL, any unpaid or incorrectly calculated PAYE or NICs relating to an umbrella contractor will be transferred first to the recruitment agency, and subsequently to the end-client, if the umbrella company fails to meet its obligations to HMRC.

It's worth noting that IR35 itself is not changing.

However, the increased exposure created by the JSL legislation could affect how businesses approach the use of contractors.

'No Safe Harbour.' The three words conducive to a shift to outside IR35

The new JSL rules do not offer any form of 'safe harbour,' meaning that even rigorous due diligence processes cannot fully protect agencies or end-clients from inheriting liability if an umbrella company fails to pay the correct tax.

As a result of this total absence in the JSL legislation of a defence or 'statutory excuse,' many organisations may start to question whether relying heavily on umbrella models is still worth the risk.

Put another way, because agencies and clients won't be able to argue to HMRC, "We carried out proper checks on the umbrella company, so we should not be held liable if they fail to pay their taxes," the overall risk (to them as the clients of umbrella companies) becomes significantly greater.

A comparatively favourable spotlight on limited company work?

This is where outside IR35 working, via the use of a Personal Service Company (PSC), possibly becomes more appealing.

When engagements are correctly structured and meet all the requirements to fall outside IR35, the umbrella company is removed entirely, with the tax liability being on the PSC.

Therefore, it may very well be that the JSL reforms to the umbrella supply chain open up more clients to Statement of Work (SoW) delivery, project-based engagements, and defined work packages, that align with outside IR35 principles.

What new umbrella company tax legislation means for the contractor workforce

For recruitment agencies and end-clients that manage large contractor populations, the April 2026 JSL framework will prompt a review of financial risk (and it's a review that may well be underway or even concluding now, in advance of April).

Four likely responses from such any such 'JSL review' include:

1. Limiting partnerships to fewer, accredited, large umbrella providers
2. Increasing adoption of SoW and project-based models
3. Moving payroll in-house with direct-to-agency hiring (so no umbrella)
4. Decreasing contractors and clients hiring directly on fixed-term contracts.

TLDR: Will 2026 see the return of the 'Outside IR35' contractor?

So, as leading recruiters of telecoms, data centre and IT contractors, what's our answer to the key question of whether 2026 will mark the return of the 'outside IR35' contractor?

Although nothing has changed with IR35 (it's still the same regulations and risk), for agencies and end-clients the umbrella route will now carry increased risk.

Therefore, we believe more end-clients will be open to discussing properly structured SoWs, project-based engagements, and defined work packages, so while not a 'boom' for the 'outside IR35 contractor,' we certainly envisage a 'boon' insofar as there being more opportunities for discussions with clients around true outside IR35 models.