Why the UK Public Sector is Encouraging SME Ecosystems in Their Supplier Base
James Burdis • January 30, 2025
The UK public sector increasingly values integrating small and medium-sized enterprises (SMEs) into their supplier base. This strategic shift is driven by several key factors that highlight the benefits of fostering SME ecosystems.
Innovation and Agility
SMEs are often at the forefront of innovation due to their agility and responsiveness to market changes. Engaging with SMEs allows the public sector to tap into this innovation, crucial for addressing complex challenges and improving public services.
Economic Growth and Job Creation
Supporting SMEs stimulates economic growth and creates jobs. SMEs are significant contributors to the UK economy, accounting for much of employment and economic activity. As of 2024, there were 5.5 million SMEs in the UK, making up 99.8% of the business population, providing employment to 16.6 million people, and generating a turnover of £2.8 trillion.
Diverse and Competitive Supply Chains
A diverse supplier base fosters competition and ensures value for money. SMEs bring specialist skills and expertise, enhancing the quality of goods and services procured and promoting a more competitive marketplace.
Social Value and Community Impact
SMEs often have strong community ties and can deliver social benefits, such as local employment and community initiatives. Working with SMEs enhances the social impact of public sector procurement activities.
Policy and Regulatory Support
Government policies encourage SME inclusion in public sector supply chains. The Crown Commercial Service (CCS) and the Department for Environment, Food & Rural Affairs (Defra) have implemented measures to remove barriers for SMEs and increase the visibility of tender opportunities.
Resilience and Sustainability
SMEs contribute to resilient and sustainable supply chains by providing niche products and services, reducing dependency on large suppliers, and offering environmentally friendly solutions.
Example: HMRC DALAS Framework
The HMRC's Digital and Legacy Application Services (DALAS) framework supports the delivery of future application services and reduces dependency on legacy technologies, providing a gateway for SMEs to offer their innovative IT solutions.
Example: Digital Capability for Health 2 (DCFH2) Framework
The DCFH2 framework supports digital transformation in health and social care by providing access to suppliers delivering a range of digital services, benefitting SMEs through competitive contracts.
Future Trends for SMEs in the Public Sector
Key trends shaping SME engagement in public sector procurement include:
- Digital Transformation and Technology Adoption: Increasing demand for innovative tech solutions.
- Sustainability and Net Zero Initiatives: Prioritising environmentally friendly products and services.
- Simplified Procurement Processes: The Procurement Act 2023 makes public procurement more accessible to SMEs.
- Focus on Social Value: Contracts awarded based on social impact.
- Increased Collaboration and Partnerships: Forming partnerships to bid for larger contracts.
- Resilience and Supply Chain Diversification: Diversifying supplier base to reduce dependency on large suppliers.
The UK public sector's encouragement of SME ecosystems within their supplier base brings numerous benefits, including fostering innovation, economic growth, social value, and supply chain resilience. By continuing to support and engage with SMEs, the public sector can build a dynamic, competitive, and sustainable procurement landscape.
If you're looking to partner with an experienced eco-system SME visit our Services page to find out more

What the Shift Really Means for Public Sector Suppliers
What a Healthy Digital Ecosystem Looks Like and Why It Matters
How the UK Public Sector is Strategically Integrating AI and Automation Across Digital Services
Hanover’s View on Why SC and BPSS Vetting Pressures Are Increasing in 2026
Find out how anover can support your DDaT capability through the DOS7 Framework
Discover how SME ecosystems can deliver real value in UK government DDaT programmes, driving innovation, better delivery, and stronger social impact.
The future of the UK Healthcare depends not just on medical excellence, but on digital capability. As the health service embraces a more integrated, data-driven, and technology-enabled model of care, the ability to procure and deploy Digital, Data and Technology (DDaT) skills has become fundamental to achieving this vision. From digital patient records and AI diagnostics to cyber-secure systems and smart analytics, these capabilities are no longer peripheral—they are core to modern, sustainable healthcare. But building this capability at scale requires more than intent. It requires a strategic framework to identify, commission, and grow the right digital skills, especially through public sector procurement. That’s where the Digital Capability Framework for Healthcare 2 (DCFH2) plays a vital role. Why DDaT Skills Are Essential for NHS Transformation The NHS is undergoing a digital transformation aimed at improving care quality, increasing operational efficiency, and reducing health inequalities. Initiatives like "What Good Looks Like", NHS Long Term Workforce Plan, and Frontline Digitisation all rely on embedding DDaT capabilities across the system. Whether deploying EPRs (electronic patient records), modernising infrastructure, or enabling data-sharing across ICSs (Integrated Care Systems), the NHS needs access to: Digital strategists and transformation leads Data scientists, analysts, and governance experts Cloud engineers, cybersecurity professionals, and developers Service designers, agile delivery managers, and digital programme specialists The Role of DCFH2 in Supporting DDaT Procurement The DCFH2 was designed to ensure the UK health Sector have a shared language and structure for identifying digital requirements. Importantly, DCFH2 also supports commissioning and procurement functions in the public sector to: Define What Good Looks Like in DDaT Skills DCFH2 outlines key digital capability domains and levels—from foundational to specialist and strategic. This enables procurement teams to specify clearer requirements in tender documents and contracts, avoiding vague or outdated job descriptions. Inform Supplier Selection and Evaluation Using DCFH2, buyers can assess supplier capabilities against a recognised national framework, ensuring that procured resources meet the digital maturity needs of the NHS. Enable Consistency Across ICSs and Programmes By aligning contracts with DCFH2, ICSs, trusts, and digital leads ensure consistency in workforce expectations—critical for interoperability and scalability. Support Value-Based Procurement DCFH2 encourages a shift from transactional procurement to value-based commissioning of digital skills, aligning spending with long-term transformation outcomes.  The importance of DDaT Ecosystem Partners The NHS doesn’t just need new systems—it needs the skills to use them effectively. Procuring DDaT skills isn’t a side task; it’s a strategic priority. Forward-thinking DCFH2 suppliers have the opportunity to utilise eco-system partners to effectively deliver DDaT skills into outcomes. Working with specialist SMEs can strengthen their contract bids and accelerate outcome delivery. As a trusted resource and technology solutions partner focused on public sector digital transformation, Hanover brings deep expertise in sourcing high-calibre DDaT professionals who understand the complexities of healthcare environments. Our ability to quickly mobilise talent across roles such as data analysts, digital programme managers, UCD specialists, and agile delivery leads makes us a valuable ecosystem partner for suppliers aiming to meet the competency standards and responsiveness required under DCFH2-aligned contracts. By leveraging our network and sector-specific insight, suppliers can enhance their capability, reduce risk, and ensure consistent delivery of outcomes in line with digital transformation goals. Find out more about Hanover’s DDaT and Technology services
Engaging with Hanover for the first time as a contractor can be an exciting yet daunting experience. Understanding the vetting and onboarding process is crucial to ensure a smooth transition and compliance with Hanover's and our Partner’s standards. This guide will walk you through the essential steps and requirements, helping you navigate the process with ease. Why Vetting is Important Vetting is a critical component of Hanover's onboarding process. It establishes a consistent and robust framework for personnel vetting and security, ensuring that all personnel working for or on behalf of Hanover meet the security requirements of Partner’s and roles. Additionally, it ensures compliance with relevant laws, regulations, standards, and contractual obligations. Required Documents for Vetting As a contractor, you will need to provide several documents to complete the vetting process. These include: Right to Work Document: Passport, Biometric Residence Permit (BRP), Birth or Adoption Certificate, Other Immigration Documents or Online Verification. Proof of Address: Documents accepted. DBS Check: Completed within the last 12 weeks; if not, a new one will need to be applied for. Copy of your current and up-to-date CV. Reference details: Covering the required time frame, provided by HR or the agency you worked through. National Insurance proof: Photo of your NI card, P45 or P60, pay slip, salary statement, or works pension statement. Client forms: These vary depending on the client and will be sent to you via Docusign. For contractors engaging via their PSC: Additional documents are required, such as the Certificate of Incorporation, Business Insurance Certificates, and Proof of Business Bank details. Umbrella contractors: Need to provide the name of the umbrella company they will be engaging through from the Hanover Umbrella PSL . The Vetting Process Timeline The vetting process is designed to be efficient and thorough. Here is a typical timeline: Notification: The Vetting Team will be notified when you have accepted your engagement. Document Request: The Vetting Team will then request the relevant documents and forms to be completed by you. If the required documents are not received by the following business day, the Vetting Team will reach out to you either by email or telephone. Document Submission: Once you have submitted your documents via email, the Vetting Team will begin to process your background checks, including applying for references. Reference Follow-up: References are followed up daily through phone calls and emails, but in some instances, the Vetting Team may need your help to obtain these. Completion: The Vetting Team will try to complete and clear your background checks within 5 working days, but this can be quicker. Engaging with Hanover as a contractor involves a thorough vetting and onboarding process designed to ensure security and compliance. By understanding the requirements and following the outlined steps, you can navigate the process smoothly and efficiently.  If you have any questions or need further assistance, the Vetting team and Hanover’s Compliance Manager are always there to help.
The Procurement Act 2023, from February 2025, introduced significant reforms aimed at enhancing public procurement processes in the UK. These changes present unique opportunities for Public Sector Prime Suppliers to collaborate with Small and Medium-sized Enterprises (SMEs), fostering a more dynamic and efficient supply chain. ​ Simplified Bidding Processes The Act introduces a 'competitive flexible' procedure, simplifying bidding and negotiation processes. This flexibility enables prime suppliers to engage SMEs more effectively, leveraging their specialized skills and innovative solutions to meet diverse public sector needs. ​ Open Commercial Frameworks By making commercial frameworks more accessible, the Act ensures that suppliers, including SMEs, are not excluded for extended periods. This openness allows prime suppliers to diversify their subcontractor base, enhancing competitiveness and resilience in project delivery. ​ Strengthened Payment Provisions The Act mandates 30-day payment terms throughout the supply chain, improving cash flow for SMEs. For prime suppliers, this ensures a stable and reliable network of subcontractors, reducing project delays and fostering stronger partnerships. ​ Enhanced Transparency with 'Find a Tender' The upgraded 'Find a Tender' or Central Digital Platform makes procurement opportunities more visible, making it easy to search at no cost and set up alerts for tenders of interest. This transparency facilitates prime suppliers in identifying and collaborating with capable SMEs, streamlining the procurement process and enhancing project outcomes. ​ Greater Oversight and Compliance The establishment of the Procurement Review Unit (PRU) provides oversight across all sectors, ensuring adherence to procurement standards. This oversight encourages fair competition and accountability, benefiting both prime suppliers and SMEs by promoting a level playing field. ​ Conclusion Embracing the reforms of the Procurement Act 2023 allows Public Sector Prime Suppliers to build robust ecosystems with SME suppliers. This collaboration not only enhances service delivery but also contributes to economic growth and innovation within the public sector.
In today's ever-evolving business landscape, understanding IR35, also known as the 'off-payroll working rules,' is crucial for both companies and contractors. This blog post will delve into the key facts, updates, and strategies related to IR35. What is IR35? IR35 was first introduced in 1999 as the 35th mandate of the year by the then Inland Revenue, now known as HMRC. The legislation was signed into law on April 6, 2000, and it applies to individuals who supply their services through an intermediary, typically a Limited Company. The primary aim of IR35 is to ensure that contractors working through their limited company, who would otherwise be considered employees if the limited company were not in place, pay employment taxes and National Insurance Contributions (NICs). This is commonly referred to as being "inside IR35." History and Background Initially, contractors were responsible for determining their IR35 status. However, with the implementation of new rules in April 2017, public sector organizations became responsible for determining the IR35 status of their contractors. This shift aimed to increase compliance and reduce tax avoidance. In April 2021, the private sector reform adjusted the responsibilities so that medium and large end clients took on the legal responsibility of determining their contractors' IR35 status. When Does IR35 Apply? IR35 applies when a contractor operates through a UK-limited company, regardless of the work location. It affects contractors engaging via their limited company with public sector clients, such as local authorities, universities, and national service organizations. And currently for medium or large private sector clients, the client must meet two of the following criteria: Have an annual turnover of at least £10.2 million Have assets of at least £5.1 million Employ at least 50 staff Where the IR35 Rules Differ The IR35 reforms that came into place in April 2021 do not apply if a private sector client is considered a small company, as they fall under the small company exemption. As of April 6, 2025, the thresholds for determining a company's size for IR35 purposes have increased. This means that more medium-sized companies will fall under the small company exemption. To fall under the small company exemption a client must meet two of the following criteria: Have an annual turnover of not more than £15m (increased from £10.2m) Have assets of not more than £7.5m (increased from £5.1m) Employ no more than 50 employees If a contractor is working for a client based entirely overseas, and the client has no presence in the UK, the IR35 reforms do not apply. In both instances, the contractor is responsible for determining their own IR35 status and paying the appropriate taxes. When IR35 was introduced into the public sector, HMRC's guidance stated that, where end clients were engaging in fully contracted-out services via a third party, the end client would not need to determine the IR35 status of workers supplied by the outsourced services provider. The service provider would need to determine the status of its own contractors. Inside vs. Outside IR35 Understanding the difference between working inside and outside IR35 is essential for contractors. Outside IR35, contractors can work as self-employed and will be paid gross. Inside IR35, contractors engage via limited companies, are employed for tax purposes only, and have PAYE and National Insurance Contributions taken from their gross pay, resulting in a net salary. Some clients opt to engage contractors through an Umbrella Company to mitigate risks, as the off-payroll working rules do not apply in such cases. The Umbrella Company employs the Contractor directly, so the off-payroll working rules do not apply as the contractor is on payroll. Determination Factors Several factors can determine a contractor's IR35 status: Supervision, Direction, and Control : Can the contractor decide when, where, and how the work is completed? Substitution : Does the contractor have the option to send someone else to deliver the work if they are unavailable? The client would need to consider if they would allow the contractor to send a substitute since real-world scenarios will be considered over and above what is stated in the contract. Mutuality of Obligation : If there is no work available, is the client obliged to find some, and is the Contractor obliged to complete the work? Financial Risk : What financial risks is the contractor undertaking to deliver the project or promote their business activities? For example: Is the contractor expected to fix any mistakes they have made at their own time and expense? Does the Contractor pay for business insurances to protect them and their business activity? Part and Parcel : Will the contractor be embedded in company life? Will they have access to staff facilities, staff social events, or receive staff benefits? Responsibilities Public sector and medium and large-sized private sector clients must decide the IR35 status of an engagement and share the status determination statement (SDS) with all parties in the supply chain. All clients must take ‘reasonable care’ when determining IR35 status. HMRC defines reasonable care as acting “in a way that would be expected of a prudent and reasonable person in the client’s position.” Clients must provide a “client-led status disagreement process,” as either the recruiter or the contractor may dispute the IR35 determination. Conclusion Understanding IR35 and its implications is essential for both contractors and companies. By staying informed about the key facts, updates, and strategies, you can navigate the complexities of IR35 and ensure compliance with the regulations. About Hanover Hanover is a hybrid IT services and staffing company helping the UK Public Sector digitise and improve public services. We operate alongside some of the worlds top Systems Integrators as an SME Ecosystem partner. Find out more about our services
What the Shift Really Means for Public Sector Suppliers
What a Healthy Digital Ecosystem Looks Like and Why It Matters
How the UK Public Sector is Strategically Integrating AI and Automation Across Digital Services
Hanover’s View on Why SC and BPSS Vetting Pressures Are Increasing in 2026
Find out how anover can support your DDaT capability through the DOS7 Framework
Discover how SME ecosystems can deliver real value in UK government DDaT programmes, driving innovation, better delivery, and stronger social impact.
The future of the UK Healthcare depends not just on medical excellence, but on digital capability. As the health service embraces a more integrated, data-driven, and technology-enabled model of care, the ability to procure and deploy Digital, Data and Technology (DDaT) skills has become fundamental to achieving this vision. From digital patient records and AI diagnostics to cyber-secure systems and smart analytics, these capabilities are no longer peripheral—they are core to modern, sustainable healthcare. But building this capability at scale requires more than intent. It requires a strategic framework to identify, commission, and grow the right digital skills, especially through public sector procurement. That’s where the Digital Capability Framework for Healthcare 2 (DCFH2) plays a vital role. Why DDaT Skills Are Essential for NHS Transformation The NHS is undergoing a digital transformation aimed at improving care quality, increasing operational efficiency, and reducing health inequalities. Initiatives like "What Good Looks Like", NHS Long Term Workforce Plan, and Frontline Digitisation all rely on embedding DDaT capabilities across the system. Whether deploying EPRs (electronic patient records), modernising infrastructure, or enabling data-sharing across ICSs (Integrated Care Systems), the NHS needs access to: Digital strategists and transformation leads Data scientists, analysts, and governance experts Cloud engineers, cybersecurity professionals, and developers Service designers, agile delivery managers, and digital programme specialists The Role of DCFH2 in Supporting DDaT Procurement The DCFH2 was designed to ensure the UK health Sector have a shared language and structure for identifying digital requirements. Importantly, DCFH2 also supports commissioning and procurement functions in the public sector to: Define What Good Looks Like in DDaT Skills DCFH2 outlines key digital capability domains and levels—from foundational to specialist and strategic. This enables procurement teams to specify clearer requirements in tender documents and contracts, avoiding vague or outdated job descriptions. Inform Supplier Selection and Evaluation Using DCFH2, buyers can assess supplier capabilities against a recognised national framework, ensuring that procured resources meet the digital maturity needs of the NHS. Enable Consistency Across ICSs and Programmes By aligning contracts with DCFH2, ICSs, trusts, and digital leads ensure consistency in workforce expectations—critical for interoperability and scalability. Support Value-Based Procurement DCFH2 encourages a shift from transactional procurement to value-based commissioning of digital skills, aligning spending with long-term transformation outcomes.  The importance of DDaT Ecosystem Partners The NHS doesn’t just need new systems—it needs the skills to use them effectively. Procuring DDaT skills isn’t a side task; it’s a strategic priority. Forward-thinking DCFH2 suppliers have the opportunity to utilise eco-system partners to effectively deliver DDaT skills into outcomes. Working with specialist SMEs can strengthen their contract bids and accelerate outcome delivery. As a trusted resource and technology solutions partner focused on public sector digital transformation, Hanover brings deep expertise in sourcing high-calibre DDaT professionals who understand the complexities of healthcare environments. Our ability to quickly mobilise talent across roles such as data analysts, digital programme managers, UCD specialists, and agile delivery leads makes us a valuable ecosystem partner for suppliers aiming to meet the competency standards and responsiveness required under DCFH2-aligned contracts. By leveraging our network and sector-specific insight, suppliers can enhance their capability, reduce risk, and ensure consistent delivery of outcomes in line with digital transformation goals. Find out more about Hanover’s DDaT and Technology services
Engaging with Hanover for the first time as a contractor can be an exciting yet daunting experience. Understanding the vetting and onboarding process is crucial to ensure a smooth transition and compliance with Hanover's and our Partner’s standards. This guide will walk you through the essential steps and requirements, helping you navigate the process with ease. Why Vetting is Important Vetting is a critical component of Hanover's onboarding process. It establishes a consistent and robust framework for personnel vetting and security, ensuring that all personnel working for or on behalf of Hanover meet the security requirements of Partner’s and roles. Additionally, it ensures compliance with relevant laws, regulations, standards, and contractual obligations. Required Documents for Vetting As a contractor, you will need to provide several documents to complete the vetting process. These include: Right to Work Document: Passport, Biometric Residence Permit (BRP), Birth or Adoption Certificate, Other Immigration Documents or Online Verification. Proof of Address: Documents accepted. DBS Check: Completed within the last 12 weeks; if not, a new one will need to be applied for. Copy of your current and up-to-date CV. Reference details: Covering the required time frame, provided by HR or the agency you worked through. National Insurance proof: Photo of your NI card, P45 or P60, pay slip, salary statement, or works pension statement. Client forms: These vary depending on the client and will be sent to you via Docusign. For contractors engaging via their PSC: Additional documents are required, such as the Certificate of Incorporation, Business Insurance Certificates, and Proof of Business Bank details. Umbrella contractors: Need to provide the name of the umbrella company they will be engaging through from the Hanover Umbrella PSL . The Vetting Process Timeline The vetting process is designed to be efficient and thorough. Here is a typical timeline: Notification: The Vetting Team will be notified when you have accepted your engagement. Document Request: The Vetting Team will then request the relevant documents and forms to be completed by you. If the required documents are not received by the following business day, the Vetting Team will reach out to you either by email or telephone. Document Submission: Once you have submitted your documents via email, the Vetting Team will begin to process your background checks, including applying for references. Reference Follow-up: References are followed up daily through phone calls and emails, but in some instances, the Vetting Team may need your help to obtain these. Completion: The Vetting Team will try to complete and clear your background checks within 5 working days, but this can be quicker. Engaging with Hanover as a contractor involves a thorough vetting and onboarding process designed to ensure security and compliance. By understanding the requirements and following the outlined steps, you can navigate the process smoothly and efficiently.  If you have any questions or need further assistance, the Vetting team and Hanover’s Compliance Manager are always there to help.
The Procurement Act 2023, from February 2025, introduced significant reforms aimed at enhancing public procurement processes in the UK. These changes present unique opportunities for Public Sector Prime Suppliers to collaborate with Small and Medium-sized Enterprises (SMEs), fostering a more dynamic and efficient supply chain. ​ Simplified Bidding Processes The Act introduces a 'competitive flexible' procedure, simplifying bidding and negotiation processes. This flexibility enables prime suppliers to engage SMEs more effectively, leveraging their specialized skills and innovative solutions to meet diverse public sector needs. ​ Open Commercial Frameworks By making commercial frameworks more accessible, the Act ensures that suppliers, including SMEs, are not excluded for extended periods. This openness allows prime suppliers to diversify their subcontractor base, enhancing competitiveness and resilience in project delivery. ​ Strengthened Payment Provisions The Act mandates 30-day payment terms throughout the supply chain, improving cash flow for SMEs. For prime suppliers, this ensures a stable and reliable network of subcontractors, reducing project delays and fostering stronger partnerships. ​ Enhanced Transparency with 'Find a Tender' The upgraded 'Find a Tender' or Central Digital Platform makes procurement opportunities more visible, making it easy to search at no cost and set up alerts for tenders of interest. This transparency facilitates prime suppliers in identifying and collaborating with capable SMEs, streamlining the procurement process and enhancing project outcomes. ​ Greater Oversight and Compliance The establishment of the Procurement Review Unit (PRU) provides oversight across all sectors, ensuring adherence to procurement standards. This oversight encourages fair competition and accountability, benefiting both prime suppliers and SMEs by promoting a level playing field. ​ Conclusion Embracing the reforms of the Procurement Act 2023 allows Public Sector Prime Suppliers to build robust ecosystems with SME suppliers. This collaboration not only enhances service delivery but also contributes to economic growth and innovation within the public sector.
In today's ever-evolving business landscape, understanding IR35, also known as the 'off-payroll working rules,' is crucial for both companies and contractors. This blog post will delve into the key facts, updates, and strategies related to IR35. What is IR35? IR35 was first introduced in 1999 as the 35th mandate of the year by the then Inland Revenue, now known as HMRC. The legislation was signed into law on April 6, 2000, and it applies to individuals who supply their services through an intermediary, typically a Limited Company. The primary aim of IR35 is to ensure that contractors working through their limited company, who would otherwise be considered employees if the limited company were not in place, pay employment taxes and National Insurance Contributions (NICs). This is commonly referred to as being "inside IR35." History and Background Initially, contractors were responsible for determining their IR35 status. However, with the implementation of new rules in April 2017, public sector organizations became responsible for determining the IR35 status of their contractors. This shift aimed to increase compliance and reduce tax avoidance. In April 2021, the private sector reform adjusted the responsibilities so that medium and large end clients took on the legal responsibility of determining their contractors' IR35 status. When Does IR35 Apply? IR35 applies when a contractor operates through a UK-limited company, regardless of the work location. It affects contractors engaging via their limited company with public sector clients, such as local authorities, universities, and national service organizations. And currently for medium or large private sector clients, the client must meet two of the following criteria: Have an annual turnover of at least £10.2 million Have assets of at least £5.1 million Employ at least 50 staff Where the IR35 Rules Differ The IR35 reforms that came into place in April 2021 do not apply if a private sector client is considered a small company, as they fall under the small company exemption. As of April 6, 2025, the thresholds for determining a company's size for IR35 purposes have increased. This means that more medium-sized companies will fall under the small company exemption. To fall under the small company exemption a client must meet two of the following criteria: Have an annual turnover of not more than £15m (increased from £10.2m) Have assets of not more than £7.5m (increased from £5.1m) Employ no more than 50 employees If a contractor is working for a client based entirely overseas, and the client has no presence in the UK, the IR35 reforms do not apply. In both instances, the contractor is responsible for determining their own IR35 status and paying the appropriate taxes. When IR35 was introduced into the public sector, HMRC's guidance stated that, where end clients were engaging in fully contracted-out services via a third party, the end client would not need to determine the IR35 status of workers supplied by the outsourced services provider. The service provider would need to determine the status of its own contractors. Inside vs. Outside IR35 Understanding the difference between working inside and outside IR35 is essential for contractors. Outside IR35, contractors can work as self-employed and will be paid gross. Inside IR35, contractors engage via limited companies, are employed for tax purposes only, and have PAYE and National Insurance Contributions taken from their gross pay, resulting in a net salary. Some clients opt to engage contractors through an Umbrella Company to mitigate risks, as the off-payroll working rules do not apply in such cases. The Umbrella Company employs the Contractor directly, so the off-payroll working rules do not apply as the contractor is on payroll. Determination Factors Several factors can determine a contractor's IR35 status: Supervision, Direction, and Control : Can the contractor decide when, where, and how the work is completed? Substitution : Does the contractor have the option to send someone else to deliver the work if they are unavailable? The client would need to consider if they would allow the contractor to send a substitute since real-world scenarios will be considered over and above what is stated in the contract. Mutuality of Obligation : If there is no work available, is the client obliged to find some, and is the Contractor obliged to complete the work? Financial Risk : What financial risks is the contractor undertaking to deliver the project or promote their business activities? For example: Is the contractor expected to fix any mistakes they have made at their own time and expense? Does the Contractor pay for business insurances to protect them and their business activity? Part and Parcel : Will the contractor be embedded in company life? Will they have access to staff facilities, staff social events, or receive staff benefits? Responsibilities Public sector and medium and large-sized private sector clients must decide the IR35 status of an engagement and share the status determination statement (SDS) with all parties in the supply chain. All clients must take ‘reasonable care’ when determining IR35 status. HMRC defines reasonable care as acting “in a way that would be expected of a prudent and reasonable person in the client’s position.” Clients must provide a “client-led status disagreement process,” as either the recruiter or the contractor may dispute the IR35 determination. Conclusion Understanding IR35 and its implications is essential for both contractors and companies. By staying informed about the key facts, updates, and strategies, you can navigate the complexities of IR35 and ensure compliance with the regulations. About Hanover Hanover is a hybrid IT services and staffing company helping the UK Public Sector digitise and improve public services. We operate alongside some of the worlds top Systems Integrators as an SME Ecosystem partner. Find out more about our services