New IR35 guidance

After many months of discussion and negotiation HMRC has unveiled its new risk assessment scoring for IR35 investigations.  It has already come in for criticism from various tax and contractor groups and we don’t think much of it either.  Remember, this is going to be biased towards most contractors falling within IR35.

The full document can be found here but a summary is below:

The tests are voluntary and HMRC cannot make you take them or, if you do take them, you do not have to reveal to HMRC which band you are in.

There are 12 subject areas in the tests in Chapter 4 – each one carrying a points score. The final tally reveals your risk: less than 10 points = high risk; 10 to 20 = medium risk; and more than 20 = low risk.

Evidence is needed to support your answers. In summary the tests and scores are:

  • Business premises- do you rent/own business premises outside your home? (10 points for a Yes)
  • PII- do you need Professional Indemnity Insurance? (2 pts)
  • Efficiency- can you increase your income through efficient working, eg finishing fixed price contracts early (10 pts)
  • Assistance - do you employ anyone? (35 pts)
  • Advertising - have you spent more than £1,200 on advertising in the past year (2 pts)
  • Previous PAYE - have you been an employee of your client (minus 15 pts)
  • Business plan - do you have a business plan and a business bank account (1pt for a yes to both)
  • Repair at own expense- do you have to put errors right at your own expense (4 pts)
  • Client risk- have you been unable to recover more than 10 per cent of your yearly turnover (10 pts)
  • Billing - do you invoice for work carried out before being paid and negotiate payment terms? (2 pts)
  • Right of substitution- do you have a right to send a substitute? (2 pts)
  • Actual substitution - have you substituted? (20 pts)

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