When I became a Legal Professional decades ago, I was passionate about the complexity of IR35. I chose to specialise exclusively on this Tax law, a desire to become the UK’s legal authority on the subject.
To achieve this, it has taken 15 years of specialism, servicing over 2,000 Clients, 6000+ Contracts, and successfully representing over 100 clients at HMRC IR35 inquiries.
I am conscious of your valuable time reading this, so I’m going to be direct and succinct with my advice. I could spend hours on IR35, but instead I’m simply going to give you 5 key takeaways to consider.
1) 75% of your contractors should fall outside IR35
Here’s a fascinating stat for you.
HMRC themselves state that 2/3rds (66%) of contractors should fall outside IR35 compliantly.
The IR35 reforms were introduced firstly to the Public Sector in 2017, with a ‘three line whip’ to push everyone inside IR35. Here we are in 2022, well over 50% of the new Contractors working in the Public Sector are outside IR35.
By comparison, there are less than 22% of roles advertised outside IR35 currently in the Private Sector. It has to play catch up, and fast.
In our experience, 75% of your skilled contractors could be compliantly structured outside IR35, output based, with expert guidance. You benefit, they benefit.
2) Working with contractors ‘outside IR35’ will save your bottom line £ millions each year
Simple maths, it costs c.40% more to pay a contractor the same net income inside IR35 vs outside IR35.
If the majority of your contractors are currently inside IR35, your Company is overpaying on it’s hiring costs, running to £ millions.
If you can adjust and learn to engage contractors as Suppliers, not employees, (it’s very achievable) a typical size company hiring c.150 contractors per year can expect to save over £3,000,000 to their bottom line…annually.
3) Engaging contractors outside IR35 presents no risk to your company, providing it’s done correctly
Yes, that’s correct.
It’s a common myth that IR35 presents a significant risk to a hiring company. It doesn’t, providing it’s managed properly.
The fact that this point is consistently misunderstood is evidence of a wider lack of legal experience on the subject.
If you use a legal IR35 specialist to manage IR35, you satisfy the ‘reasonable care’ criteria for HMRC, which crucially passes any risk and liability to your Recruitment provider. (They probably don’t volunteer that information)
The major problem is that many companies have opted to try and self-manage IR35, hastily constructing internal HR teams, using automated tools and receiving poor advice. You can’t learn IR35 by spending ½ a day on google, the law is very complex and you end up leaving yourselves exposed to wrong decisions and poorly drafted paperwork. HMRC know this.
I’ve worked directly with HMRC, managing over 100 IR35 enquiries for my clients, all of which have been very short and comfortable experiences.
This is simply because my team understand the tax law in depth, made the right assessments for my clients, drafted the correct paperwork, and left no room for exposure.
Do it right and there is no risk.
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.
4) IR35 can be a huge competitive advantage, if you adapt
Companies don’t hire contractors to keep the seats warm. They are highly skilled and provide key deliverables that contribute positively to company performance.
The success of their work is dependent on two things.
- A) the calibre of contractor and
- B) your ability to retain them.
Both A & B are influenced by IR35 decisions. Adapt to work with contractors outside IR35 and your company is going to sweep up the very best talent, cost effectively, whilst retaining them for the project duration. Your competitors will quickly be left behind.
Simply put, the best contractors only work outside IR35. If you don’t adapt to take advantage, your competitors soon will. You’ll be left employing sub-calibre talent and overpaying for the privilege.
5) You can start benefitting now
I can’t emphasise enough, IR35 represents a real opportunity for forward thinking companies.
It’s undeniably complex, but that’s why we manage the entire headache for our Clients. They can simply concentrate on finding the very best talent to support their projects.
It’s also a logical commercial decision. Client ROI on our service is over 1000%, delivering 7 figure cost savings straight back to the bottom line.
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