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Watch your IR35 status, SMEs warned

If you’re an SME, you need to watch your IR35 status declarations or you could be inadvertently breaking the law without even realising you’re doing so.

Making sure your IR35 declarations can spell the difference between an ignominious end and a successful, thriving business. HMRC takes IR35 legislation quite seriously – even more so since tax avoidance has become such a hot-button issue lately – and if there’s an even a whiff of incorrect IR35 declarations, the taxman will set the dogs on you in an eyeblink, whether or not you’re guilty.

SMEs that use contractors are especially in need of careful diligence, thanks to the way freelancers are taxed. Both contractors and SMEs alike pay less in taxes as opposed to an employee-employer relationship, and a few bad apples have ruined the bunch by claiming employees to be contractors in order to get a break on their taxes.

The line can be blurred all too easily between a contracting relationship and one that involves a permanent employee. Your contractual agreement needs to be absolutely ironclad in order to avoid being called upon the carpet for any alleged ‘disguised employment,’ and even if you can prove to HMRC that you’re on the up and up, it could cost a pretty penny to defend yourself from the taxman’s scrutiny.

Now, HMRC doesn’t go challenging companies willy-nilly, but there’s always the possibility that its gaze will turn on you thanks to an overzealous bean counter. You’re better off knowing you’re in no danger of IR35 whatsoever than simply hoping for the best.

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