HMRC have recently published new guidance designed to help contractors self-assess their possible liability to the IR35 rules. Twelve business entity test questions explore the following main areas:
- Business premises
- PII
- Efficiency
- Assistance
- Advertising
- Previous PAYE
- Business plan
- Repair at own expense
- Client risk
- Billing
- Right of substitution
- Actual substitution
Each test asks at least one question with ‘yes’ answers scoring points. The amount of points scored depends on the specific tests and the total number of points is added up at the end.
The results of these questions categorise risk into one of the following three risk bands: low risk (less than 10 points), medium risk (10 to 20 points) and high risk (more than 20 points). The use of the tests by taxpayers is completely voluntary and does not replace the existing IR35 guidance at this stage.
HMRC are understood to have begun writing to taxpayers that have been identified as high risk. The letter, which has been seen by a number of contracting bodies asks taxpayers if they have considered the possibility that their company falls under the legislation. Whilst there has been no change in the IR35 legislation at this time taxpayers that are deemed high risk are being targeted by HMRC. HMRC have also said that taxpayers who are defined as medium risk also risk being subject to an HMRC check to determine if the IR35 rules apply to them.
If you are concerned that your company may be affected by this new guidance please contact us for further advice.
John Elliott, Tax Partner
