Categorized | ir35 rules, news

SMEs urged to not be scared off by IR35 rules

Small and medium-sized businesses in the UK should not be scared off by the current labyrinthine state of IR35 rules when it comes to hiring contract workers, as they could save as much as £2 billion by using the self-employed.

New research from Unbiased did the maths on how much SMEs could save on their insurance liabilities and lowered tax payments by filling vacancies with contract workers instead of permanent staff, even as HMRC has muddied the waters when it comes to what constitutes a ‘disguised employee’ under IR35 tax avoidance rules.

It’s true that there are some underhanded companies that are engaging in tax avoidance schemes by using contractors that are simply ‘disguised’ employees. However, the contractors in question almost always went from a permanent employee with the company to being a self-employed ‘contractor’ exclusively undertaking work for the same company in the same exact manner that they did as a permanent worker, a very specific case that the majority of SMEs would not be in danger of falling into.

Much of the confusion comes from HMRC’s absolutely atrocious new IR35 guidance tests, which were recently introduced to nearly universal criticism for being too complex. Moreover, IR35 legislation has not changed, but the new guidance has seen more than one SME owner or contractor that was not in danger of falling under IR35 suddenly being listed as a ‘high risk’ case all of a sudden.

It’s a good case of HMRC shooting itself in its foot; the UK economy needs businesses to lead the recovery, and businesses need to maximise their incomes while minimising their outgoings – and using contract workers to their advantage is a large part of that. With HMRC making it more complicated to use temporary workers, it’s making it harder for the economy to bounce back.

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