IR35 and Exemptions

As a small company, should you assess your contractors IR35 status?

The IR35 reforms that came into effect in April 2021 do not affect small companies. Nonetheless, some small companies that anticipate growth may choose to assess their contractors in advance of becoming obliged to do so. Another reason why small companies should carefully consider the rules is if the owners have plans to sell the company in the future.

More detail

Small companies are exempt from the April 2021 changes, however, often ambitious companies anticipating growth choose to assess their contractors before they become obligated to do so to mitigate potential risk as they grow.

The other primary reason for a small company to consider the rules carefully is if the owners intend to sell the company eventually. If the seller has been hiring "deemed employees" the company valuation will be considerably decreased, or the sale may not occur. When small companies are sold to larger companies, due diligence will be conducted, including future IR35 risk.

The third reason for implementing a regime is the strong likelihood that the small companies' exemption will disappear. The exemption was never intended to be included when the legislation was first proposed, and having the two sets of rules coexisting is overly complex. Companies are already required to consider status when hiring sole traders, so it should not be an additional burden if they need to do so when hiring workers operating via PSCs.

IR35 Shield works with many companies forecasting active growth who have decided to start assessing their contractors before they are technically required to make sure they can demonstrate a solid working model to their clients.

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