Get IR35 Ready with CH4B.
Staying on top of compliance can feel like navigating a maze when you run an SME; whether it’s data protection, health and safety, tax laws or employment regulations, business owners often face the pressure of “not knowing what they don’t know.”
IR35 is one of the lesser understood, but potentially high-risk, pieces of legislation affecting small businesses, especially those who engage freelancers, subcontractors or consultants. Non-compliance doesn’t just lead to fines, it can also put your business reputation and financial stability at risk.
54% of SMEs said they struggle to keep up with changes in legislation – and 1 in 4 have been penalised due to non-compliance (source: Sage UK, 2023).
IR35 is a critical area of risk. And while some companies mistakenly think it doesn’t apply to them, many more simply don’t know where to start.
What is IR35?
IR35 (also known as the off-payroll working rules) is HMRC legislation designed to prevent “disguised employment”. In plain English: it stops businesses from treating workers like employees in practice, while classifying them as self-employed to avoid tax and NI contributions.
If your business hires contractors through, you could be liable for determining their employment status, and ensuring tax is paid correctly.
If you get it wrong you may face penalties, backdated tax, and even reputational damage.
But I’m a Small Business, does IR35 Apply to Me?
Here’s the good news. If you qualify as a “small business” under HMRC rules ( to qualify as a small business you must meet at least two of these criteria: fewer than 50 employees, turnover under £15 million, and balance sheet under £7.5 million), then the responsibility for determining IR35 status lies with the contractor – not you.
However, that doesn’t mean you’re off the hook.
HMRC can still scrutinise your relationship with contractors. If it looks, walks and talks like an employer–employee relationship, you could be at risk, regardless of what the contract says.
The Top 5 Ways to Reduce IR35 Compliance Risk
At CH4B, we’ve worked with thousands of SMEs to help them reduce risk when engaging contractors. Here’s how to protect your business:
- Understand the difference between inside and outside IR35
Inside IR35 = employed for tax purposes. Outside IR35 = truly self-employed. Our downloadable guide explains the checklist for each in simple, practical terms.
- Use HMRC’s CEST tool (Check Employment Status for Tax)
Always keep a record of the result, and revisit it if circumstances change.
- Focus on working practices – not just contracts
HMRC cares more about how you work day-to-day than what’s written on paper. If you’re dictating hours, providing equipment, or offering holiday pay – those are red flags.
- Clearly define project-based outcomes
Set deliverables and milestones rather than day rates and supervision.
- Review and audit contractor roles regularly
As you grow, your responsibilities change, and so will your IR35 obligations.
Free Guide: Managing Risk with Subcontractors
If you’re unsure how to assess contractor risk or want to ensure your processes are watertight, download our free, practical guide to mitigating risk with subcontractors and staying compliant with IR35.
This guide includes:
- A simple checklist for identifying if a contractor is inside or outside IR35
- Red flags to avoid in your contracts and working practices
- Advice on how to safely engage subcontractors and mitigate financial penalties
- Sector-specific tips, including advice for construction and consultancy businesses
