In this short article, I’m going to explain why you may not be aware that IR35 is currently costing your Company £millions, and how you save these additional costs, back to your bottom line.
I have over 17 years as a specialist IR35 Lawyer, I will also explain why companies misunderstand IR35 and their perceived risks, in reality if you use expert guidance there are no liabilities or risks, only significant benefits. It’s a real opportunity to create a competitive advantage for your company.
Since the 2021 reform, IR35 has become a very expensive headache for companies to solve. Day rates have increased, it’s a struggle to find the right calibre contractors, and even more of a struggle to keep them. There is a 25%+ cost uplift when hiring contractors ‘inside IR35’, in our observations many companies have convinced themselves the contractor is simply ‘picking up the tab’ for these additional employer taxes when working inside IR35, within their day rate.
In truth, it’s always the end Client that is picking up the tab when a contractor is inside IR35, and it’s a very expensive one.
It’s simple maths, let me explain.
There is only one important question you ever need to ask when you employ a Contractor on inside IR35 terms.
Is the Contractor content with their take home pay?
To be honest, whatever their answer is, you have a problem to solve .
If the answer is no, you likely won’t be able to keep them to finish the assignment, if you were lucky enough to attract them in the first place. Industry stats show they’ll be off as soon as their head is turned, most often for an offer outside IR35.
If the answer is yes, you are simply paying 25%+ more cost than you need to hire them.
Let’s look at the illustration below of engaging a typical £500 per day skilled Contractor outside IR35, making the comparison of the cost to hire inside vs outside IR35. Their circumstances are identical, the same holidays (30 days). We’ve also allowed for all the costs associated with their Ltd company, relevant if they are outside IR35.
Client Cost | Client Total budget per month@ £628/day (with 30 days leave) | Client Total budget per month @ £500 day (with 30 days annual leave) | ||
| Less: Employer NI | No employer deductions required | |||
| Apprenticeship levy | ||||
| Total Candidate Gross Monthly pay | Total candidate Gross Monthly pay | |||
Contractor Cost | Less: PAYE & Employees NI | Corporation tax, Dividend tax, PAYE & NI | ||
| Candidate net pay | Candidate net pay | |||
As you’ll see, if the Client was to pay the Contractor outside IR35, they’d save themselves £2,452 per month, or £29,424 per year. That’s a cost uplift of over 26% to pay the same Contractor on an inside IR35 basis.
The Contractor’s net income is the same, they’re no better or worse off in either scenario. If they’re content with the take home on offer, they’re content however it’s paid to them, inside or outside. It’s always the Client footing the extra.
In this short article, I’m going to explain why you may not be aware that IR35 is currently costing your Company £millions, and how you can save these additional costs, back to your bottom line.
I have over 17 years as a specialist IR35 Lawyer, I will also explain why companies misunderstand IR35 and their perceived risks, in reality if you use expert guidance there are no liabilities or risks, only significant benefits. It’s a real opportunity to create a competitive advantage for your company.
Since the 2021 reform, IR35 has become a very expensive headache for companies to solve. Day rates have increased, it’s a struggle to find the right calibre contractors, and even more of a struggle to keep them. There is a 25%+ cost uplift when hiring contractors ‘inside IR35’, in our observations many companies have convinced themselves the contractor is simply ‘picking up the tab’ for these additional employer taxes when working inside IR35, within their day rate.
In truth, it’s always the end Client that is picking up the tab when a contractor is inside IR35, and it’s a very expensive one.
It’s simple maths, let me explain.
There is only one important question you ever need to ask when you employ a Contractor on inside IR35 terms.
Will you pass an HMRC IR35 enquiry?
Take our 5 minute online IR35 risk assessment to find out
HMRC’s soft landing period has ended and IR35 enquiries will soon begin in the private sector. Make sure you identify any risk areas and ensure you’re managing it correctly.