Would an online IR35 test help? 2


Tablet

The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.

In 2012 HMRC put forward the Business Tests but they haven’t been as successful as first thought.

Here are the 12 tests, scores shown in()

  1. Business premises (10)
  2. PII (2)
  3. Efficiency (10)
  4. Assistance (35)
  5. Advertising (2)
  6. Previous PAYE (minus 15)
  7. Business plan (1)
  8. Repair at own expense (4)
  9. Client risk (10)
  10. Billing (2)
  11. Right of substitution (2)
  12. Actual substitution (20)

A score less than 10 is high risk and a score more than 20 is low risk. Fail the test and it could cost you a great deal in tax.

In general the key test tend to be:

  1. Substitution
  2. Control
  3. Financial Risk

HMRC launched the ESI (Employment Status Indicator) a while ago.

The recently published Minutes of the IR35 Forum’s last meeting held on 24th July reveal that HMRC are keen for contractors to be able to assess their employment status by way of the Employment Status Indicator (ESI) tool.

Will this resolve the IR35 Status problems?

 

steve@bicknells.net

2 comments

  1. I can see that allocating a big negative score related to a former status (PAYE) does wonders to reduce the scores and bring more people into a risk category.

    What I can’t quite see is how on earth your current status could actually be impacted by your prior status.

    That’s like saying that a person is less likely to be single because they are in the same room as their former spouse!

    Take this one item out of the equation and far more people will pass the IR35 test. …..hmmmmmmm?

  2. I can’t help thinking that the test is clearly defined to classify more people as employees (or equivalent) as the weighting of the scores is skewed towards the pointers for employment than self employment.

    The news this morning that HMRC is to withdraw the BET due to it being unused merely highlights that the test cannot trump legal precedence which is why it was so unpopular.

    IR35 still exists but it is now clear the “tick box” approach is not the answer. The contract and the practical carrying out of the contract gives the intention of both parties and this should not be subsumed by the desire of HMRC to generate additional tax revenue.

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