If you operate a personal service company then it’s worthwhile checking how your business scores in HM Revenue & Customs new business tests.
The new guidance includes six examples in which HM Revenue & Customs explains whether the worker’s contract would be caught by IR35 or not.
The first part of the document is taken up with 12 business entity tests, complete with a scoring system that allows the taxpayer to judge whether his business would be at high, medium, or low risk of being caught by IR35.
These business entity tests are not derived from the IR35 legislation and do not include key indicators of self-employment established by case law, such as control and mutuality of obligation. They merely represent HM Revenue & Customs’s view of the risk of a business falling within IR35. The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner’s home.
This new HM Revenue & Customs guidance does not change IR35 law. If a business chooses to use the business entity tests, the score doesn’t have to be declared to HM Revenue & Customs, it is merely a guide to ‘IR35 risk’. The IR35 guidance may also be changed with little or no notice, as HM Revenue & Customs have said it is in a ‘test and learn’ phase which is expected to last 12 months.
If you are concerned that the business entity tests produce a high risk score for your business, then you should find out why this is the case.
Are they any changes which can be made to the way the business operates which would make it less risky in the eyes of HM Revenue & Customs? For example, quote for fixed price contracts, advertise the business using websites or networking events, and keep management accounts including a rolling business plan.
If you’d like to discuss how to lower the IR35 risk profile of your business, please get in touch.