IR35 Dilemma: Contractors or Dedicated Teams? Maximizing Benefits for UK Employers

Published on June 19, 2024
ir35-compliant-hiring-1 IR35 Dilemma: Contractors or Dedicated Teams? Maximizing Benefits for UK Employers

In our last article, we tackled the intricate web of IR35 regulations designed to combat tax evasion among the UK's "disguised employees." Navigating these rules is crucial to avoiding penalties. Now, let's take a deeper dive into a crucial decision-making process: choosing between hiring independent contractors and dedicated teams within the bounds of this legislation.

The path you choose hinges on various factors: the project scope, budget, and the need for specialized skills. UK businesses must weigh these elements to align their workforce strategy with overarching goals. So, without further delay, let's embark on this journey to explore your hiring alternatives for navigating the labyrinth of IR35 assessments.

The IR35 Landscape in the UK

As we described last time, the off-payroll working rules shifted the responsibility of IR35 assessment and associated tax liabilities from the individual contractor to you – the employer. This significant change, coupled with what has been labeled as 'double taxation' under IR35, has presented considerable challenges for businesses navigating compliance.

Essentially, 'double taxation' occurs when HMRC retroactively deems that a contractor, initially classified by the employer as operating outside IR35, should have been categorized as inside IR35. Consequently, HMRC issues a tax bill to the fee-paying party without offsetting the tax already remitted by the contractor. The legislation's striking complexity has deterred businesses from engaging contractors, leading to risk-averse practices such as limited company contractor bans.

And what about businesses that prefer working with independent contractors or cannot afford in-house hiring due to budgetary constraints? There’s a light at the end of the tunnel!

From April 6th, 2024, a legislative fix offsets taxes already paid by contractors against the PAYE liability, providing relief to businesses. The process involves HMRC making deductions based on assumptions and best judgment, including corporation tax, income tax, NICs, and tax on dividend payments. However, this change does not apply retrospectively, and certain costs like Employer NICs and the Apprenticeship Levy remain the responsibility of businesses.

That said, business owners still need to exercise extreme caution when engaging Personal Service Companies (PSCs).

From April 2024, businesses can breathe a little easier with a new legislative fix. While not a complete solution, this change offers some financial relief by offsetting contractor taxes against PAYE liability.

IR35 Assessment: Remote Independent Workers vs. Dedicated Teams Providers

Faced with IR35 legislation, UK businesses can opt for many different hiring methods alternative to in-house recruitment. Among the most popular are independent contractor sourcing and team augmentation services.

Remote independent workers, often freelancers or consultants, operate autonomously outside traditional employment structures. They usually provide services on a project basis and are typically hired for their specialized skills and flexibility. On the other hand, dedicated teams providers offer easy access to a vast talent pool across various disciplines. These companies employ specialists and create expert teams working as a direct extension of the client’s in-house workforce.

Now, the key difference between the two lies in the employment relationship. Remote independent workers work directly with clients as self-employed individuals (PCSs), whereas dedicated teams providers act as intermediaries, employing specialists and assigning them to client projects. Additionally, dedicated teams providers offer a wider range of services and resources associated with recruitment and employee management, including onboarding, contract negotiation or payroll and performance.

When deciding on the right model, it’s important to find a balance between flexibility and compliance. While independent contractors offer adaptability to client needs, they may lack the expertise to navigate evolving IR35 assessments. Conversely, professional team augmentation companies remove IR35 risks from their clients, ensuring flexibility in scaling teams, providing access to a skilled talent pool outside the UK, and maintaining cost efficiency.

What are the Pros & Cons of Hiring External Contractors in the Light of IR35?


There are many reasons to either hire or not hire external contractors.

Flexibility and Scalability

Contract labor provides employers with unparalleled flexibility to meet short-term needs. Employers engage independent contractors for specific projects and seamlessly offboard them when the project is finished. This agility in staffing is particularly valuable in navigating foreign markets with complex legal requirements for terminating employees. 

Additionally, working with independent contractors offers scalability, allowing employers to swiftly adjust their workforce size according to fluctuating workloads without facing the complexities of traditional terminations.

While suitable for temporary projects, external contractors aren’t ideal for longstanding projects. In contrast, staff augmentation companies offer flexible dedicated teams solutions that benefit both short-term and long-term engagements.


Employing independent contractors often proves to be more cost-effective than internal hiring. While they may command higher hourly rates than employees, the overall expenses associated with hiring employees – including benefits, office space, equipment, and various mandatory contributions – can significantly inflate payroll costs.

This advantage applies only to contractors correctly classified as outside IR35. Otherwise, you might face all the costs of non-compliance and face a hefty bill.

Management and Communication Challenges

Ensuring compliance with IR35 regulations demands clear communication and comprehensive legal understanding throughout the organization. However, the autonomy inherent in independent contractor arrangements presents a unique challenge. Unlike traditional employees, contractors operate with greater independence, which can lead to communication breakdowns and potential IR35 non-compliance. Failing to address these challenges effectively can expose your business to legal and financial risks.

Legal and Compliance Risks under IR35

Over-reliance on contractors under IR35 can lead to legal and compliance risks, as highlighted by instances where businesses heavily dependent on contractors faced disruptions due to legislative changes. Misclassification of workers, mistakenly categorizing employees as contractors, carries significant consequences, including unpaid taxes, back benefits liabilities, legal fines, and reputational damage.

IR35: The Case for Specialized Teams

Specialized staff augmentation companies like Pwrteams provide dedicated teams services helping clients build expert teams without the challenges and restrictions of hiring independent contractors.

Access to Expertise and Talent

Opting for a dedicated development team offers unparalleled access to niche expertise and talent pools, crucial for implementing complex business visions. This model enables businesses to fill gaps in specialist expertise efficiently and harness subject matter expertise along with requisite skills and resources. 

By engaging an established team, clients gain access to a deep understanding of project requirements and benefit from high-quality results delivered by experts committed to long-term collaboration.

Mitigation of IR35 Compliance Risks

Unlike individual contractors who may operate under personal service companies, your dedicated team members are employed directly by a staff augmentation company. At Pwrteams, we recruit vetted specialists from Bulgaria, Ukraine, Poland, Estonia, Lithuania, Serbia, and Mexico. This arrangement ensures that teams are subject to appropriate tax and employment regulations in their respective countries, removing the risk of misclassification and non-compliance with IR35 rules.

Seamless Integration and Collaboration

Dedicated teams are meticulously assembled to align seamlessly with your business culture. Through a rigorous selection process, team members are carefully chosen to ensure they complement each other's expertise and work well together. In such a positive and productive setting, team members are more inclined to remain on board, reducing the need for alternative hiring solutions that could lead to IR35 assessment challenges.

Streamlined Recruitment and Administration

Navigating IR35 compliance can be daunting, especially during recruitment. Business owners grappling with legislative changes may feel uncertain about the compliance status of potential candidates. With dedicated teams from Pwrteams, you are free from IR35 violation concerns. We match you with IT experts from Central and Eastern Europe and Latin America, and handle all HR administrative tasks and labor law compliance.

Opting for a dedicated development team offers access to niche expertise and talent pools, crucial for implementing complex business visions.

The Value of Partnering with Dedicated Teams Provider

Partnering with independent contractors and dedicated teams providers brings distinct advantages. Your choice should reflect your business scale, project needs, and team dynamics. Whether you value adaptability or adherence to regulations, both are pivotal for effective collaboration. Seasoned team augmentation firms such as Pwrteams offer an optimal mix, delivering top-tier talent while addressing administrative and legal concerns, and ensuring IR35 compliance.

Dedicated Support and Expertise

As your staff augmentation partner, Pwrteams leverages extensive industry expertise and market insights to provide invaluable guidance. We invest time in understanding your hiring needs, curating top-tier tech talent through a meticulous recruitment process that includes thorough vetting. Upon your selection, we ensure seamless onboarding and ongoing support. Explore our complimentary playbook for the first 12 weeks together to discover the collaborative journey from day one.

Offloading Administrative Burdens

Handing the recruitment process over to a dedicated teams provider frees you from the stress of resume verification, onboarding, payroll, and compliance management. Your Pwrteams’ specialists work as part of your in-house team, while officially remaining our employees on paper. We take care of all HR queries, troubleshoot any arising issues, and manage the necessary paperwork, enabling you to concentrate on your core business activities and enhance project efficiency.

Ensuring Compliance and Risk Mitigation

In today's dynamic global market, navigating complex local labor laws can be daunting for businesses looking to grow their talent resources. Dedicated teams providers offer expertise in regulations and industry standards, streamlining your recruitment process. With our dedicated support, you'll effortlessly navigate IR35 restrictions and diverse labor laws, ensuring compliance and avoiding legal and financial risks.

Unmatched Partnership Flexibility

Being tied to a rigid offer is the last thing you need when assembling your new team of experts. That’s why at Pwrteams, you can easily ramp up or down your team size based on project requirements, with no volume obligations holding you back. Our transparent pricing ensures you know exactly what to expect, eliminating any surprises or hidden costs.

By accessing our Central and Eastern European talent pool, you gain access to highly skilled professionals with excellent English proficiency, all equipped with diverse IT expertise to drive excellence in your projects.

Experienced team augmentation firms can deliver top-tier talent while addressing legal concerns & IR35 compliance.

Choose Dedicated Teams for Flexibility and IR35 Compliance 

In the post-IR35 era, strategic workforce planning isn't just advisable – it's a must if you want your UK business to remain competitive and thriving. Specialized teams provide not just legal compliance but flexible expertise, laying the foundation for enduring success. From seamless integration to dedicated support, partnering with staff augmentation partners like Pwrteams streamlines operations while mitigating risks.

Got more questions or need further guidance? Contact us directly, and we'll ensure your hiring process always remains IR35 compliant.

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