Virgin Money and its parent Clydesdale Bank have introduced new policies for contractors and umbrella company seeking a mortgage affected by new IR35 tax rules.

HMRC introduced these changes on 6 April which mean “all public sector clients and medium or large-sized clients outside the public sector are responsible for deciding your worker’s employment status”.

Customs adds that “if off-payroll working rules apply, your worker’s fees will be subject to income tax and national insurance contributions”.

Virgin Money and Clydesdale Bank say they will lend to contractors who fall inside IR35.

They add, contractors paid via an umbrella, payroll service company, are acceptable.

The lenders say, where a contractor is paid through an umbrella the applicant must provide their last two months payslips where the gross pay is taken into account, after deduction of statutory employer costs, like employer national insurance and apprenticeship levy, and payroll service costs.

They add: “Other complex contractor situations will be assessed manually by an underwriter and considered on an individual case by case basis.”

Virgin Money head of customer acquisition Sarah Green says: “As a bank we understand that contractors need mortgage products that are flexible enough to accommodate their professional and financial situations and that is why, following the IR35 changes we have made these positive amendments to our lending policy.”

The new IR35 rules affect workers such as self-employed mortgage brokers.

The government’s aim is to clamp down on companies that rely on contractors as though they were employees, but keep them off the payroll in a bid to keep down taxes for both parties.