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New IR35 Guidance Launched By HMRC

10 - 05 - 2012

New IR35 guidance was launched by HMRC yesterday relating to the enforcement and administration of the intermediaries legislation.

The new package contains 12 ‘business entity tests’, 6 new example scenarios, related guidance for contractors and details of an IR35 helpline staffed by ‘specialists’.

 The new helpline may provide quicker case decision-making from better trained IR35 compliance teams. However it is also suggested that the specialist teams have been established at HMRC to pursue taxpayers using the new IR35 processes.

The 12 business entity tests, which aim to help to determine the status of workers, and therefore whether IR35 applies, are:

 

• Business premises
• Professional indemnity insurance
• Efficiency
• Advertising
• Previous PAYE
• Business plan
• Repair at own expense
• Client risk
• Billing
• Right of substitution
• Actual substitution

 Points are awarded for each answer. Test subjects are provided with a three-tier banding system (low, medium or high) to determine the risk of HMRC deeming that they fall within IR35. Less than 10 points is considered ‘high risk’. Subjects who fall into the ‘high’ or ‘medium’ risk category are likely to be investigated by HMRC.

Businesses in the ‘low risk’ category (over 20 points) are advised to retain evidence that they fall into that band. Where sufficient evidence is presented to HMRC on request the IR35 review will be ‘closed’ and the subject will not be re-investigated for a period of 3 years.
 

The IR35 business entity test, alongside the IR35 scenarios, is being trialled ahead of a consultation. HMRC has emphasised the tests and scenarios are "not set in stone" and they may change "in response to feedback and business changes".

 

Many advisors welcome the new scenarios and more detailed guidance that HMRC has provided in the document. However, the weightings given to the different elements of the business entity tests have already given rise to discussion. There are also concerns that contractors may feel the need to focus efforts on achieving a score of 20 points to automatically bring themselves into the ‘low risk’ zone.

 

In 2011, Chancellor George Osborne set up the IR35 Forum, aimed at improving the administration of IR35 and reducing the confusion surrounding the legislation. However, the IR35 legislation itself remains unchanged and contractors who are genuinely in business on their own account will not be caught by IR35.

 

To access the publication - click here 

 

For help and advice on the issues surrounding IR35, contact Foremans LLP on 01244 625 500.

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