Five years on from the private-sector reforms, IR35 fatigue has set in. Determinations are made, processes exist, contractors are either in or out, and life moves on.
That’s understandable. It’s also a problem.
Because while the legislation has settled into the background, the market shaped by it hasn’t stopped moving. The 2026 contract market looks materially different to the 2023 one, and the assumptions that drove your last hiring cycle may no longer be the right ones for your next.
This is a clear-eyed look at where contract still wins, where perm is making a comeback, and how to approach blended teams.
What’s actually changed in 2026
The small company threshold has moved.
From 6 April 2026, the financial thresholds that determine whether an end client counts as “small” (and therefore exempt from the off-payroll rules) have increased. The turnover limit rose from £10.2 million to £15 million, the balance sheet limit rose from £5.1 million to £7.5 million, and the 50-employee limit remained unchanged. Around 14,000 businesses are expected to fall into this newly reclassified category, affecting thousands of contractor engagements across the UK.
In practice, that means a slice of mid-sized tech businesses now sit outside the off-payroll regime, with status determinations shifting back to the contractor’s own PSC. For tech leaders in those organisations, the immediate effect is increased flexibility around contractor engagement. For everyone else, it’s a reminder that the supply side of the market has just been reshaped.
Joint and Several Liability rules now apply to umbrella arrangements.
From April 2026, where PAYE is not correctly operated within the labour supply chain, HMRC can recover unpaid tax from other parties, including agencies and, in some cases, end clients. The era of treating umbrella compliance as someone else’s problem is over. Supply chain due diligence is now an end-client risk, not just a procurement preference.
Neither of these is a headline change in the way the 2021 reforms were. But together, they’re shifting how organisations think about the cost, risk, and structure of contract engagement.
Where contract still wins
Despite five years of friction, contract hiring remains the right answer for a recognisable set of situations:
Genuine specialist scarcity.
When the role is a cloud security architect, a senior data platform engineer, or someone with three years of hands-on experience with a specific ERP migration, the perm market simply doesn’t have the depth. The candidates exist, they’re just contracting. Forcing those hires into a permanent shape doesn’t expand the talent pool; it just lengthens your time-to-hire.
Defined-duration work with a clear endpoint.
Migrations, implementations, decommissionings, and time-boxed transformation phases are still the natural home of contract. The work has a start, a middle, and an end. Hiring permanently for it creates a different problem twelve months later.
Surge capacity around delivery milestones.
When you need to double your team for six months to hit a regulatory deadline, you’re not actually trying to grow the team. You’re trying to flex it. Contract remains the cleanest mechanism for that, despite the day-rate inflation in specialist areas.
Outside-IR35 roles that genuinely deserve to be.
Where the work is project-bound, the contractor controls the how, and substitution is real, outside-IR35 engagements still attract a different (and often deeper) candidate pool. Mislabelling these as inside to avoid the determination conversation has been a quiet cost for many hiring teams; the candidates notice, and the strongest ones go elsewhere.
Where perm is making a comeback
The more interesting shift is in the other direction.
Day rates have compressed the gap.
Contractor rates have held up better than perm salaries in several specialist areas, but the gross-to-net story has worsened. More than 600 contractors surveyed by Qdos identified the lack of outside-IR35 opportunities as the biggest threat to their business viability, with 24% citing simply finding new contract work as their primary concern in 2026. A meaningful cohort of experienced contractors are now actively open to perm conversations they wouldn’t have entertained two years ago, particularly where the role offers genuine technical scope and reasonable flexibility.
Long-running “contracts” have become an audit risk.
Engagements that have rolled for two, three, or four years on essentially the same scope look increasingly difficult to defend on substitution and control grounds. Organisations are quietly converting longstanding contractors into perm hires – sometimes because the contractor wants the stability, sometimes because the organisation has decided the risk-adjusted economics have flipped.
Retention pressures favour permanent capability for core systems.
Knowledge that walks out the door at the end of an engagement is a recurring pain point. For systems that are core to the business (not project work, but the platforms the business runs on), engineering leaders are increasingly choosing to pay the perm premium for continuity.
The blended team question
The more useful framing for 2026 isn’t “contract or perm?” It’s “what shape of team delivers this programme?”
A transformation programme typically needs three kinds of capability:
- Strategic ownership – the architect, programme lead, or principal engineer whose context and judgment shapes the work. Almost always perm, and increasingly so.
- Core delivery capacity – engineers, analysts, and specialists doing the day-to-day work. Mixed, depending on duration and skill specificity.
- Surge or specialist input – short, sharp, defined contributions. Almost always contract, or increasingly delivered via Statement of Work.
Where many programmes go wrong is collapsing those three categories into a single “we need ten engineers” hiring brief. The shape of how those ten people are engaged matters as much as who they are, and IR35 considerations are one input into that, not the dominant one.
What this means for your Q3 hiring plan
A few practical considerations as you scope the rest of 2026:
Don’t default.
Defaulting every role to perm because IR35 feels too hard, or to contract because perm hiring feels too slow, leaves real value on the table. Both have a place; the question is which fits this specific piece of work.
Audit your longstanding engagements.
If you have contractors who’ve been on the same scope for 18+ months, the determination is worth revisiting – both for compliance and for whether perm conversion is now the better commercial answer.
Take supply chain compliance seriously.
With JSL now applying to umbrella arrangements, the diligence you do on agencies and umbrellas is materially more important than it was twelve months ago.
Consider Statement of Work where the work suits it.
For genuinely outcome-shaped pieces of work – a migration, an implementation, a defined platform build – SoW is increasingly the cleaner answer than a team of contractors. It removes the IR35 question entirely and shifts the accountability conversation onto delivery, which is usually what the business wanted in the first place. (Our colleagues at Inscope Select write about this in more detail here.)
IR35 isn’t getting simpler. But the organisations hiring well in 2026 aren’t the ones who’ve mastered the legislation; they’re the ones who’ve stopped letting it be the loudest voice in the room when they’re designing how to deliver.
If you’re scoping technology hires for Q3 or Q4 and want to think through the right shape of team, get in touch.
