IR35 survey reveals 50% of IT and Engineering umbrella contractors face unexpected deductions. Is it time to scrap the assignment rate and so much more?

Data from ContractorCalculator’s BIG IR35 & Umbrella Survey highlights that the market for “Outside IR35” work remains robust; however, those contractors operating via intermediaries face a compliance environment ill-equipped for the future of work.

Key Findings of the BIG IR35 & Umbrella Survey

The April 2026 survey, featuring 730 high-earning professionals primarily in IT and Engineering, revealed:

• 50% of respondents discovered umbrella deductions they did not expect
• 69% of contractors cannot determine if an umbrella is tax-compliant
• 82% of limited company contractors successfully secured “Outside IR35” work
• Only 37% received the legally required Key Information Document (KID)
• 39% of contractors reported being paid late

Why is Umbrella Compliance Falling Short in Major Hubs?

In the high-stakes recruitment markets of London and regional UK hubs, 85% of respondents are told they must use an umbrella for “Inside IR35” roles. However, the payment mechanism remains opaque.

Only 54% of participants understand the difference between the assignment rate and the PAYE rate. This confusion often leads to the unexpected deductions reported by half the workforce. Despite being a legal mandate, the absence of KIDs for 63% of respondents suggests that compliance is being bypassed, leaving workers without a clear breakdown of their take-home pay.

Contractors pushed into umbrellas

Contractors who are working via agencies on “on-payroll” engagements. (e.g., not working outside IR35) have responded:

• 85% are told they must use an umbrella for certain roles
• 71% report roles conditional on umbrella use
• 88% say an umbrella was the only option in their most recent engagement

Strong contractor opposition

• Only 5% are happy to use an umbrella
• 25% say they will never use one
• 39% will only use one if forced

This lack of choice is impacting the market, with contractors declining roles, increasing rates, or leaving altogether, thereby reducing access to talent for hiring firms.

Our survey shows just how widespread the issue of restricted choice has become, with many contractors being offered roles conditional on using a specific umbrella company. The proposal to remove this practice is essential.

Giving contractors genuine freedom to choose how they work will help prevent the kind of market distortions that have previously led to workers being channelled into high-risk or non-compliant arrangements. 

–Dave Chaplin, CEO of ContractorCalculator

How do Umbrella Companies Handle Holiday Pay and Statutory Rights?

The survey data points to a lack of clarity regarding statutory rights. Exactly 50% of respondents do not understand the difference between “rolled-up” and “accrued” holiday pay.

Most concerning for the long-term security of the workforce is that 9% of contractors explicitly report that their holiday pay has been withheld. Some 17% of contractors were offered roles only on the condition that they “opt out” of the Conduct Regulations. This tactic potentially strips workers of essential protections regarding payment and contract clarity.

Is IR35 Still Impacting the IT and Engineering Sectors?

Contrary to fears of a market-wide “Inside IR35” mandate, the survey shows that 78% of Status Determination Statements (SDS) are currently “Outside IR35.” Skilled contractors are still finding ways to operate via limited companies, with 81% successfully negotiating increased rates when forced to work “Inside.”

However, with 35% of these determinations relying on HMRC’s CEST tool and 8% being disputed, the need for robust compliance and clear communication from agencies is urgent.

IR35 continues to drive market distortion

• 82% of contractors have secured outside IR35 work
• 78% of Status Determination Statements result in outside IR35 outcomes
• 81% increase rates when working inside IR35

What are the Risks of Joint and Several Liability (JSL) for Recruitment Agencies?

The findings follow the introduction of Joint and Several Liability (JSL) rules on 6 April 2026. Under these rules, agencies and end clients can be held responsible for unpaid taxes if non-compliant umbrellas are used in the supply chain.

Chaplin warns that the current lack of choice is distorting the market:

Our survey results highlight the lack of transparency contractors face. Giving contractors genuine freedom to choose how they work will help prevent workers being channelled into high-risk arrangements.

• 69% of contractors cannot determine whether an umbrella company is tax compliant
• Payslip complexity and unclear deductions remain widespread
• 34% choose umbrellas based on the highest take-home pay rather than compliance

With Joint and Several Liability (JSL) rules now in effect, these conditions increase the risk of non-compliance transferring up the supply chain.

Critical Recruitment Supply Chain Risks:

• Restricted choice: 88% of respondents say an umbrella is their only payment option
• Conditional offers: 71% report roles are made conditional on using a specific umbrella
• Financial opaque structures: Only 35% can calculate their true gross pay from an advertised assignment rate

Can Recruiters Improve Transparency and “Make Work Pay”?

With only 30% of contractors surveyed able to verify their payslip accuracy, Chaplin argues that moving away from opaque “assignment rates” is essential.

“Recruiters must adapt to ensure they offer real alternatives, including agency payroll,” Chaplin concludes.

As the government moves forward with its Make Work Pay agenda, these findings serve as a warning to officials to prevent further supply chain exploitation and create a fairer market for the UK’s flexible talent.