Contractors ‘could cut SME tax bills by £2bn’

Businesses could slash their tax bills by up to £2 billion by using self-employed contractors, according to professional advice website

In its Small Business Tax Action Report, published on 1 August, highlighted the tax benefits to small and medium-sized enterprises (SMEs) of using freelance workers but warned they needed to be careful to comply with HM Revenue & Customs (HMRC) tax rules on so-called “disguised employees” – workers leaving a company to become self-employed while effectively continuing to be employed on a more or less full-time basis by the company,

The tax savings are linked to national insurance contributions. Based on an assumption that around 15 per cent of higher rate tax payers could switch to self-employed status, estimates that SMEs could benefit from national insurance savings of around £2 billion every year as a result. 

Karen Barrett, chief executive of comments: “Tax is a vast and complex subject and it can be hard for business owners to find the time to understand how to optimise their tax status whilst also running their business day to day. 

“Our Small Business Tax Action Report reveals that by utilising self-employed workers better, SMEs could be saving tax payments but it also highlights that tax can be a bit of a minefield!”

The report, which looks at the overall amount of tax SMEs waste by not making use of tax breaks, and tax-efficient ways of running a business, says that UK SMEs could save £7.1 billion on tax.