The Competitive Advantage of the Small Business Exemption.

1 June 2021

IR35 reform went live in Private Sector in April this year. Since the go-live date, a few trends have begun to appear across the UK.

Companies who deemed their contracts as Inside IR35, are consequentially paying substantially higher rates as contractors charge more per day to cover PAYE deductions. These companies also have a reduced pool of talent from which to choose, as many contractors look past Inside engagements hoping to find a contract outside IR35.

Contractors typically operate as PSCs, and this has traditionally afforded them a level of autonomy over their accounts, taxes, and financial affairs. This autonomy and independence is often one of the main drivers for people moving into the contract market, and it isn’t something people are readily willing to give up, even if it means sitting on the sidelines for a few weeks waiting for the right, next opportunity.

The reform to IR35 carries with it a Small Business Exemption. Under this exemption, the liability for deciding tax/employment status remains with the contractor.

To qualify for the exemption, a business must satisfy 2 or more of the following criteria:

  • An annual turnover of less than £10.2 million
  • A balance sheet total of less than £5.1 million
  • Fewer than 50 employees

This undoubtedly provides small businesses with the opportunity to engage with some seriously talented independent contractors, as they retain the autonomy to determine their own tax status. We have also seen a trend in contractors lowering their charge rates to secure Outside IR35 contracts, which is testament to just how important their independence is. It also stands to reason that there will be a larger pool of talent available, as many contractors patiently wait for an opportunity that is not deemed to be Inside.

What this means is that Small Businesses who maybe traditionally felt they could not compete with larger contract hirers in terms of rate or conditions offered, now have a substantial competitive advantage, and could use this clause of the reform to secure some fantastic contract talent for their projects.

If you are a small business and would like to speak about contract recruitment and how we could help you ramp up your project teams, please feel free to get in touch with me on 02896 935 509 / j.johnston@mcsgroup.jobs.


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