IR35 Shake-Up: 2025 Small Business Exemption Changes for Tech Businesses

As a specialist contract tech and IT recruitment consultancy, we keep our finger on the pulse of legislative changes that impact both our clients and the contractors they hire. One significant shift on the horizon is the upcoming update to the off-payroll working rules (IR35) in April 2025. These changes could significantly alter how many businesses handle contractor status assessments, and it’s crucial to understand the implications.  

Let’s explore the impact of IR35 on UK tech businesses and how to mitigate risks, ensuring compliance while still benefiting from contract talent. 

IR35: A Brief Overview

The IR35 legislation was initially designed to identify whether a contractor or self-employed worker was being used as a “disguise” for permanent employment. If contractors are deemed to fall within IR35, they are taxed similarly to employees, meaning higher National Insurance contributions and income tax.

Businesses 

For tech companies, IR35 has significant implications, as it could lead to higher costs, fewer available contractors, and a shift in how contractors are hired. Ensuring that your contractors are either inside or outside of IR35 is crucial to avoid substantial penalties from HMRC. 

Contractors and Employees 

For contractors, it’s important to understand the new off-payroll working changes and the differences between inside vs. Outside IR35: 

• Inside IR35: If your contract is “inside IR35,” HMRC treats you as an employee for tax purposes, leading to higher tax deductions and lower take-home pay. 

• Outside IR35: If your contract is “outside IR35,” you’re seen as self-employed, allowing for a more tax-efficient salary and dividend structure. 

For more information, visit the HMRC website here.

The Impact on UK Tech Businesses

One of the key changes to IR35 legislation is the redefinition of what is considered a “small company”. From April 2025, around 14,000 UK businesses that are just outside the current threshold will shift from medium to small status, meaning contractors will (once again) be responsible for determining their own IR35 status. 

It’s important to note that under the new criteria, a company is considered “small” if it meets at least two of the following conditions: 

• Annual turnover: Not exceeding £15 million (up from £10.2 million). 

• Balance sheet total: Not exceeding £7.5 million (up from £5.1 million). 

• Number of employees: 50 or fewer (unchanged). 

Crucially, the legislation applies retrospectively. This means that companies can benefit from the increased threshold as soon as the legislation comes into effect in April 2025, even considering previous financial years. 

“Corecom has seen a 34% increase in contract requirements this year and policies that support business investment, innovation, and delivery are exactly what I believe is needed. Generating small business and contractor collaboration by reducing hiring friction is key – and that’s exactly what our IR35 package / business offers.” – Rick Hughes, Director @ Corecom Consulting

These changes show how important it is for both contractors and businesses to stay up-to-date and adjust their compliance strategies – and with the right partner, businesses can still thrive despite the new rules.

What Does This Mean for Your Business?

If you’re a business that uses contractors, now is the time to prepare. Understanding your company’s size in relation to these new thresholds is paramount. If you anticipate falling under the new “small company” definition, you’ll need to adjust your processes accordingly. While the responsibility shifts to the contractor, it’s still wise to ensure your contractors understand their obligations to avoid any potential legal issues down the line.

How Can Corecom Consulting Help?

Navigating the complexities of IR35 can be a minefield. That’s where Corecom comes in. We offer a comprehensive IR35 package designed to help businesses confidently manage the process of hiring contractors. Here’s how we can assist: 

1. Status determination support: Provide insurance covered Status Determinations through our online IR35 tool. 

2. Contract review: Ensuring your contracts are compliant and protect your business. 

3. Ongoing guidance: Keeping you up-to-date on the latest changes and best practices.

With IR35 scrutiny increasing, businesses need to be proactive in addressing these changes ahead of April 2025 – saving you time, resources, and potential headaches down the road. 

We’re here to help you navigate the complexities of IR35, ensuring your business stays compliant, minimising disruption and helping you maintain business growth. 

Get in touch today for a consultation to learn more about how we can support your tech business with IR35 compliance and contract hiring.