IR35 - Managing Credit & Cashflow


“Debt to solvency to savings” – Jan Mosiewicz

First and foremost, it is important to note that we are not tax or IR35 experts, our expertise lies in both credit and debt management. 

We consider preventative approaches to managing debt to be of critical importance.  We know from experience that too little is done to support consumers who find themselves in circumstances which adversely affect their income.   We hope that this paper will raise a number of issues that are thought provoking, will encourage contractors, their representatives and lenders/suppliers to review their approach to handling the impact of IR35  and will lead to a journey of change in both corporate and consumer behaviour. We cannot resolve the challenges raised by IR35 but we can show how to mitigate impact.

Whilst this paper is a high-level overview of the impact that IR35 may have upon the contractor community, the issues and concerns raised cut across any sectors where individual consumers experiences irregular income flow.  

DIGIMASS focuses specifically on the use of open banking and digital applications that can support consumers in creating and managing budgets together with servicing credit.   As part of this process we firmly believe that consumers should have savings accounts despite any debt that they may be required to service and regardless of the interest rates offered.  

Position Statement

“How will we know the numbers impacted by IR35”

It is important to note that statistics regularly quote more that 8 million consumers are in debt.  However, this number more than doubles when consideration is given to those consumers who have limited or zero savings available to them and are therefore ‘at risk’.  

Of primary concern is that IR35 changes have the potential to drive 1000’s of people into this latter category over a period of time, with a substantial proportion already facing the prospect of mortgage and/or unsecured credit arrears. 

Rules for contractors, who have been delivering services through IR35, will change on 6th April 2020.  As with all rule changes, this has the potential for many unintended consequences.  

For some, limited changes will be made to the way in which they bill and earn income through their own limited company.  However, for many there will be radical changes to their financial operating model which will result in a dramatic reduction in net disposable income.  We are aware that in anticipation of the impact of IR35 large numbers of contractors have already been ‘laid off’.

We do not believe the numbers of people impacted will be visible immediately and neither do we think that debt will emerge within the first quartile of changes.  It is, however, all too easy for consumers not to take stock immediately of their change in circumstances and still live to the standards to which they have become accustomed.  Experientially, consumers base their lifestyle on cashflow and do not forward plan adequately for unexpected events. It might be expected that contractors would be more experienced in dealing with income breaks, but it is likely that none have properly anticipated the impact of the IR 35 changes. 

Digital applications, particularly those that can deliver a wholly holistic financial analysis, will be critical in assisting those contractors to adjust to their change in circumstances and DIGIMASS are already helping to pioneer the use of digital open banking to promote financial well-being.

The Key Players


  • are usually mobile moving across several companies during their working career

  • span all aspects of work in the UK, from financial services, to NHS and building construction

  • are frequently reliant on having a good credit rating as a condition of offer of role

  • maximise their income through taking a low salary topped up through dividends taken from profit generated through their own company

  • claim expenses and tax benefits on at least one of  the following 

  • mobile phone

  • accommodation 

  • equipment

  • transport

  • subsistence expenses

  • frequently employ administrative support through their company, often a family member

  • have rarely or never used the benefit system and, in the event of unemployment, have limited knowledge on what can be claimed and by whom


  • provide this professional community with accommodation 

  • buy to let short term rental

  • rooms to rent

  • hotel accommodation

  • provide accountancy services 

  • deliver insurance products

  • deliver financial services 

  • company bank accounts 

  • company loans and credit cards

  • professional pensions and investment advice

  • insurance cover

  • PCP or other car purchase options

  • Equipment, IT and media support


  • supply services both direct and indirect to contractors most of whom have never failed to pay their priority services.   

  • mortgage

  • rent

  • utilities – e.g. gas, electric, water, telecoms 

  • transport

  • have current liabilities e.g. approx. 80% of new vehicles are delivered each year through PCP packages. 

General Statement

“Contractors are being assessed – inside or outside of IR35?”

At this stage there is no statistical data available relating to numbers of people impacted. If the ‘noise’ on social media is anything to go by the numbers are significant. In 2019 projections estimated 170,000 contractors would be directly impacted by the changes. In a ‘worst case scenario’ this would equate to one of the largest ‘redundancy’ programmes in history without any benefits available for those impacted. 

Working within the world of debt management, we understand that consumers fall into debt for many reasons but for many it is an income shock and the associated effects that push individuals into a debt spiral. For contractors it is this that has the potential to create unexpected financial challenges including moving into a position of being overindebted. 

Solutions and Support 

“forced me to recognise and change behaviours not just in respect of spending but also saving and borrowing”

The Role of Open Banking and Digital Apps

At DIGIMASS we promote the use of open banking and digital apps as a way to manage finances.  Our research with a small group of people including students demonstrated to us limited knowledge of :

  • how to use the technology

  • how to set a budget

  • the implications of “tap and go” spending

  • how cash simply ‘disappears’

  • The repeat behaviours that cause excessive spending

Once the use of open banking and the benefits of digital apps were better understood, our researchers were able to: 

  • Ensure money was allocated to essential spends

  • Make informed decisions about spending on items of choice

  • Take steps to modify behaviours in spending patterns

  • Understand the importance of moving towards a model for saving rather than spending

“During this period of income shock people need help”.  

Creditors should have already taken some action 

Where income shock is identified as the reason for arrears, then their responsibility to the consumer immediately transitions to ensuring they focus on priority debt.  Whilst this may be based upon a place to live, utilities, food and medicines with contractors their priorities could extend to HMRC in respect of taxes and PAYE. We are assuming that credit risk departments have already adjusted their scorecards to take account of the likely impact of IR35 and, knowing that it has been on the horizon these changes were implemented in a timely manner to ensure zero risk of having lent ‘inappropriately’ or without proper consideration of known impact on future cashflows.

Being prepared for these changes should have been a high priority for all creditors and, if not, they now need to be working on how to mitigate risk, both to the borrower and the organisation. 

Open banking and digital apps can play a very valuable role in supporting consumers both during the early stages of income shock and in the future management of budgets.  They can also be invaluable to creditors in both identifying and mitigating impact at individual account level.

Our recommendations: 

  • Undertake a risk assessment, if possible, based on known occupation

  • If consumers are known to use open banking and digital apps commence a campaign to encourage early review of income vs budget

  • If open banking is available on creditor platforms together with digital apps either direct or through a third-party provider (TPP) commence a campaign to encourage consumers to utilise the technology available

  • Develop a communications strategy, including the training of front -line operators, to encourage consumers to utilise open banking apps and to share their data with you

  • Develop relationships with groups who can support consumers with income maximisation rather than the standard collector models where the goal is to collect on a single debt

Whilst it is always considered prudent to direct consumers who are in debt to the free advice sector, it is important to note that not all can support the consumers with income maximisation.  The free services are over-whelmed with the sheer volume of cases they are dealing with which results in consumers being directed to on-line apps.  These automated apps may not have the capability of managing the more complex aspects of contractor’s finances.  

Advisors vs Collectors

In the meantime, many people will be faced with either reduced or no income.  Some will have savings to fall back on whilst others may quickly fall into debt. 

As part of a remediation programme we would recommend partnering with advisors.    These types of advisors are likely to be engaged on fixed retention models and will know how to guide the customer on how to maximise their income through benefits where entitled, achieve reductions in utility costs where possible, re-negotiate credit agreements or repayment programmes. This advisory group is probably utilised by other services already using them to handle those in poverty or facing substantial levels of debt, rather than using them to promote preventative strategies at a much earlier stage in the management process.

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Contractors can work both inside and outside of IR35 – this paper does not seek to address this topic.  A link is enclosed to IPSE which is the Association of Independent Professionals and the Self Employed.

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