With the 2025/26 tax year now here, contractors are likely to have several questions regarding how the recent tax rules changes will impact them. As recruitment agencies, it’s essential that you stay informed and equipped to answer these queries effectively.
We’ve shed light on some of the most common questions contractors may have, helping you as a recruitment agency provide valuable insight and reassurance during this transitional period.
1. How will the new tax year impact my take-home pay?
One of the most common questions contractors ask is about changes to their take-home pay. The 2025/26 tax year brings adjustments national insurance rates, and other tax reliefs, which may directly influence what contractors take home.
For example, a contractor earning £60,000 annually may see a reduction in their take-home pay due to changes in National Insurance Contributions (NICs).
Recruitment agencies should explain that contractors might see variations in their pay based on these adjustments and encourage them to review their tax planning strategies.
It’s also crucial to remind contractors that tax laws can change throughout the year, so staying updated on legislative announcements is key. Encouraging proactive tax reviews will help contractors stay financially prepared.
2. Will IR35 rules be affected in the new tax year?
IR35 remains a major concern for contractors, as it determines whether a contractor is considered an employee for tax purposes. In previous tax years, significant changes were introduced, especially for medium and large companies that now have the responsibility to determine a contractor’s IR35 status.
For the 2025/26 tax year, the IR35 framework is expected to remain intact. However, agencies should reassure any contractors working through personal service companies (PSCs) / Limited Companies that they still need to assess their individual situations to ensure correct classification. Misclassification can have serious tax consequences.
Recruitment agencies should advise contractors to consult with tax professionals if they are unsure about their status under IR35. This can help avoid misclassification and ensure that all tax obligations are met.
3. What should contractors know about off-payroll working?
Off-payroll working continues to impact contractors working through personal service companies (PSCs) for medium and large private sector clients. The rules governing off-payroll working have been a significant concern for contractors, and it’s essential for agencies to be informed about these regulations.
Contractors should be encouraged to engage in discussions with their clients regarding off-payroll status to ensure they are being paid compliantly. Recommend to your contractors that they keep these conversations proactive. As an agency, you can help them avoid tax issues related to misclassification.
4. Will tax reliefs and allowances change?
Contractors often ask about the availability of tax reliefs and allowances, such as the tax-free personal allowance, pension contributions, and other deductions. Agencies should be prepared to inform contractors about any anticipated changes in the upcoming tax year.
For example, some tax reliefs and allowances may increase, while others could potentially be phased out. It’s crucial to let contractors know that reviewing their current tax arrangements and consulting with a tax advisor can optimise their financial planning for the year ahead.
5. How do new tax year changes affect my expenses?
Many contractors incur business-related expenses that are tax-deductible, such as travel, equipment, and office supplies. In the 2025/26 tax year, contractors may have questions about how changes to tax laws will affect what they can claim as allowable expenses.
Recruitment agencies can assist by highlighting that expenses related to the work being carried out may be deductible. However, it’s important for contractors to check if there are any new restrictions or additional claims available.
Agencies should encourage contractors to keep accurate records and consult with HMRC to ensure they maximise their claims and remain compliant. Typically, umbrella companies can pass on client reimbursable expenses via payroll, but any tax relief for non-reimbursable expenses needs to be claimed directly with HMRC. You can find out more about this at https://www.fairpayservices.co.uk/expenses/.
6. What about National Insurance Contributions (NICs)?
National Insurance Contributions (NICs) play a key role in a contractor’s tax calculations, and any changes to NIC rates or thresholds could impact take-home pay. Recruitment agencies should advise contractors to stay aware of any adjustments to NIC thresholds and ensure they are paying the correct contributions based on their earnings.
Contractors should also understand how NICs relate to their entitlement to benefits, such as state pension or maternity pay. Ensuring contractors understand these connections is vital for long-term financial planning.
7. What should contractors do to prepare for the changes?
As the new tax year approaches, agencies should encourage contractors to take a proactive approach by reviewing their financials. This could involve:
- Speaking with a tax advisor to ensure they are fully compliant with the new regulations.
- Adjusting their contracts or payment structures if necessary.
- Setting aside time to understand how changes will affect their net income.
By helping contractors stay informed and plan ahead, recruitment agencies can build trust and provide added value to their contractor workforce.
Final thoughts
The tax year 2025/26 brings with it a host of changes that contractors need to understand. As a recruitment agency, it’s important to provide clarity and guidance on key issues such as IR35, off-payroll working, tax reliefs, NICs, and expenses. By staying informed and offering practical advice, you can assist contractors in navigating these changes, ensuring they continue to work efficiently and compliantly.
For recruitment agencies, being a trusted resource during tax transitions not only enhances your relationship with contractors but also positions you as a forward-thinking partner in their business journey.
Key takeaways:
- Review tax planning strategies for the 2025/26 tax year.
- Stay informed on IR35 updates and off-payroll working regulations.
- Ensure contractors understand any changes to NICs and tax allowances.
- Guide contractors in managing their expenses and deductions effectively.