HMRC readies IR35 test kit

After several weeks of debate and backroom lobbying, HMRC is due to release a “business entities test” to help personal services companies assess their risk of being caught by IR35 rules.

Developed in tandem with the IR35 Forum following the chancellor’s announcement of a major overhaul for the operation of personal services company rules, the business test will be made available shortly after 7 May, Bauer & Cottrell’s Kate Cottrell, who is a member of the IR35 Forum, told Freelanceuk.com in April.

When it appears, the business entities test is likely to be based on six indicative questions. The release of the outline test has been delayed due to the vehemence of discussions within the IR35 Forum. The PCG, which contributed some of the original questions that will be included, believes the current assessment to be “insufficient” and is pushing for the inclusion of more risk indicators

All the parties involved in the project stress that the test is merely a risk assessment, and should not be used to determine IR35 status, which will continue to be based on the notional contract in place between the contractor and client, revolving around criteria such as control, direction, substitution, mutuality of obligation and so on.

Dave Chaplin of ContractorCalculator.co.uk commented: “The new business entity tests proposed by the IR35 Forum are potentially an unhelpful layer of complexity on top of an already over-complex system.”

The topic has already had an airing in AccountingWEB.co.uk’s IR35 reform discussion group, which features contributions from Kate Cottrell, Dave Chaplin and anti-IR35 campaigner dstickl. If you are interested in more detailed discussion of the reform proposals and business entity test, do join them there.

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Comments
bookmarklee's picture

You have to wonder...    7 thanks

bookmarklee | | Permalink

...whether they have tested this on the c2,000 'self-employed' civil servants that are billing the Gov't through personal services companies. 

 

@bookmarklee....    2 thanks

justsotax | | Permalink

LMFAO......(if that's not being too rude)....

Why do HMRC seem so late, compared with Dan Alexander's letter?    1 thanks

dstickl | | Permalink

Why do HMRC seem so late, compared with the apparent tempo of Danny Alexander's letter/s re the alleged apparent SLC scandal, where we've had a total silence on from PAC [Parliamentary House of Commons "Public Accounts [Select] Committee"]  on whether IR35 was applied in full or not?

Please note that Parliament does not have to know the monetary tax payment details of the SLC etc chap, just to know whether the IR35 "scheme" was ignored, or not, and whether HMRC will actively chase for any outstanding IR35 monies due plus penalties!

Now this IR35 fiscal horror has come home to roost, together with its "figurative outfall', will the PAC [Parliamentary House of Commons "Public Accounts [Select] Committee"] publicly call for IR35 to be applied retrospectively to these 2,000 workers (?passengers?), to start with?

Do we now have "Drivel Servants" in the place of "Civil Servants", to report to MPs?

Only 6 days left on this BBC2TV "Newsnight" programme iPlayer link:-

http://www.bbc.co.uk/iplayer/episode/b01h7mqm/Newsnight_02_05_2012/ 

... just watch the first fifteen minutes!   Will you notice an apparent ignorance of the "fiscal horror" words of "IR35" ?

Question 1: Why is there a general ignorance of IR35 on the Parliamentary House of Commons "Public Accounts [Select] Committee", because allegedly neither Margaret Hodge MP {Chair} nor [I think, and apologies if I'm mistaken here] Richard Bacon MP {member} IMHO mentioned an IR35 aspect?

Question 2: Is HMRC deliberately ostrich like (hole in ...) because it just cannot defend IR35, except for "ordinary" people - as allegedly opposed to apparently some of those people in central and local government and quangos, perhaps?

SUM UP: Question 3: Why not just apply the law as it currently stands to the government's 2,000?

carnmores's picture

the select committees are a joke

carnmores | | Permalink

norman st  john stevas is probably rolling in his grave - however the PAC is one of the better ones!

VICTIM TESTS    1 thanks

ThornyIssues | | Permalink

What a (deliberate?) waste of time and money. Both HMRC and HMG have u-turned and reneged on any semblance of IR35 clarification or operation. The HMRC VICTIM TESTS ensure that over 85% of those who may fall within the remit of IR35 will score in the "high risk" category and thus attempt they to use the old Fear, Uncertainty and Doubt (FUD) techniquie to extract the maximum amount ot tax, whether truely due or not, from the uninformed taxpayer.

The VICTIM TESTS don't even recognise existing case law. According to the PCG, the six cases that they supported through tribunal last year and that resulted in six wins, had the victims scoring in the high risk category of the VICTIM TESTS. 

So, status quo remains. IR35 has not changed. Existing case law is still the only true route to determination. The message is clear. Do not go anywhere near the HMRC tests because firstly, they will give the HMRC prefered answer and probably not the true result. Secondly, you are just assisting HMRC with data to feed their "targetting" system and thirdly, if HMRC come calling, exercise your right and state that you want to go straight to tribunal. Of course, you'll have all your IR35 contract ducks in a row and use professional representation. You've got a better than 95% chance of a win after all. 

Now, now

ThornyIssues | | Permalink

bookmarklee wrote:

...whether they have tested this on the c2,000 'self-employed' civil servants that are billing the Gov't through personal services companies. 

Careful now, you have no idea how many are true freelancers and you seem to forget that a lot, if not most true freelancers are forced to incorporated because of S134 legislation introduced in 1999. The issue here is that there is no "right to be self-employed". If you want to be an employee, you enter into a contract of employment (a contract OF service) and thus, your employer is responsible for your tax affairs under PAYE, your pension, employment law rights, holiday pay, SMP etc, etc.

If on the other hand you wish to operate as a freelance, you enter into a contract FOR services and that should be possible at any level, no matter how long, no matter how many clients and under whatever business structure suits (SE, LtdCo, LLP etc).

 

it's bad for business and the overall economy,

dominovision | | Permalink

it will get to the where there is no point working in the UK really... conversations with multinationals currently based in the UK will start to go something like this:

Client: Yes you have the right skills and experience, we need you for a 6 month project. When can you start?

Supplier: Immediately, but my rate has to go up 100%.

Client : Why? we don't have the budget for that.

Supplier: Yep not going to turn up for less than £800 per day as the gov want £400 of that (+ a bit more). However, I could work from your new office in Kiev and I'll charge you £375 instead.

Client : Ok that would work. As most of the work is online, meetings are via phone call / webex and the team are global dispersed already. You could also work from Singapore if needed.

Supplier: Ok will start Monday in Kiev (15% flat rate income tax) and fly in once a month to run through things face to face. I'll run it through a non UK co as well.

 

 

god help us

doorsteps | | Permalink

Lets hope this test kit isn't drawn up by the same HMRC monkeys that have been hauling pointless test cases through the IR35 tribunal circuit

Does it come with litmus paper ?

Truth stranger than fiction

ThornyIssues | | Permalink

dominovision wrote:

it will get to the where there is no point working in the UK really... conversations with multinationals currently based in the UK will start to go something like this:

Client: Yes you have the right skills and experience, we need you for a 6 month project. When can you start?

Supplier: Immediately, but my rate has to go up 100%.

Client : Why? we don't have the budget for that.

Supplier: Yep not going to turn up for less than £800 per day as the gov want £400 of that (+ a bit more). However, I could work from your new office in Kiev and I'll charge you £375 instead.

Client : Ok that would work. As most of the work is online, meetings are via phone call / webex and the team are global dispersed already. You could also work from Singapore if needed.

Supplier: Ok will start Monday in Kiev (15% flat rate income tax) and fly in once a month to run through things face to face. I'll run it through a non UK co as well.

 

While that is indeed a possible senario, the truth is stranger than fiction. It would more likely that a foreign owned service company will walk in and place a pile of ICT sub-continent drones. Thus, while the tax avoiding freelancers are removed, the Governement dept and HMG saves public face, tax is lost because jobs are lost and corporation tax is lost throght the foriegn based service company> The replacement workers will pay very little tax.

Joined up thinking and the laws of unintended consequences ...... eh!   

Taxing issue

The Limey | | Permalink

ThornyIssues wrote:

 If you want to be an employee, you enter into a contract of employment (a contract OF service) and thus, your employer is responsible for your tax affairs under PAYE, your pension, employment law rights, holiday pay, SMP etc, etc.

If on the other hand you wish to operate as a freelance, you enter into a contract FOR services and that should be possible at any level, no matter how long, no matter how many clients and under whatever business structure suits (SE, LtdCo, LLP etc).

 

Hmm. That is a - deliberate? - over simplification. There is no statutory definition of either one of those, and it doesn't matter what the contract says it is - it's what's actually happening that counts.

In terms of actually sorting it out, my personal preference would be to pierce the veil of incorporation for pretty much all small businesses.

Kill the golden egg would you

a_q | | Permalink

The Limey wrote:

In terms of actually sorting it out, my personal preference would be to pierce the veil of incorporation for pretty much all small businesses.

 

While that may be logical on one level, in practical terms you would end up with no limited co's to grow into medium to large businesses, and by breaking the little golden eggs you'd kill the next generation of geese to tax the bejasus out of.

@ThornyI:QsRE:IR35 VICTIM TESTS & alleged HMRC double standards?

dstickl | | Permalink

ThornyIssues wrote:

What a (deliberate?) waste of time and money. Both HMRC and HMG have u-turned and reneged on any semblance of IR35 clarification or operation. The HMRC VICTIM TESTS ensure that over 85% of those who may fall within the remit of IR35 will score in the "high risk" category and thus attempt they to use the old Fear, Uncertainty and Doubt (FUD) techniquie to extract the maximum amount ot tax, whether truely due or not, from the uninformed taxpayer.

The VICTIM TESTS don't even recognise existing case law. According to the PCG, the six cases that they supported through tribunal last year and that resulted in six wins, had the victims scoring in the high risk category of the VICTIM TESTS. 

So, status quo remains. IR35 has not changed. Existing case law is still the only true route to determination. The message is clear. Do not go anywhere near the HMRC tests because firstly, they will give the HMRC prefered answer and probably not the true result. Secondly, you are just assisting HMRC with data to feed their "targetting" system and thirdly, if HMRC come calling, exercise your right and state that you want to go straight to tribunal. Of course, you'll have all your IR35 contract ducks in a row and use professional representation. You've got a better than 95% chance of a win after all. 

Hi ThorneyIssues, As I wrote on another thread just now:-

http://www.accountingweb.co.uk/article/sweetman-more-shocks-civil-servant-contractors/527091#comment-557719

Here are 2 SUM UP questions:

Q 1: Is there a double standard in HMRC's application of IR35 legislation, one "lax" standard for alleged 'end client' HMG’s alleged 2,000 "disguised employees" - and another for the rest of workers (e.g. outside the public sector)?

Q 2: Since when was a "Un/Due Discrimination Act" passed?

Interesting perspective. Of

The Limey | | Permalink

Interesting perspective. Of course, would have to come along with sensible tax levels...

carnmores's picture

lets wait and see

carnmores | | Permalink

before going overboard - tho we probably will - is there a way of getting these sort of pronouncements judicially reviewed if perceived to be bull

 

HMRC Guidance now published    2 thanks

Kate Cottrell | | Permalink

 

The guidance has been published today.  See here:

http://www.hmrc.gov.uk/news/index.htm

 

Nope

ThornyIssues | | Permalink

The Limey wrote:

ThornyIssues wrote:

 If you want to be an employee, you enter into a contract of employment (a contract OF service) and thus, your employer is responsible for your tax affairs under PAYE, your pension, employment law rights, holiday pay, SMP etc, etc.

If on the other hand you wish to operate as a freelance, you enter into a contract FOR services and that should be possible at any level, no matter how long, no matter how many clients and under whatever business structure suits (SE, LtdCo, LLP etc).

 

Hmm. That is a - deliberate? - over simplification. There is no statutory definition of either one of those, and it doesn't matter what the contract says it is - it's what's actually happening that counts.

In terms of actually sorting it out, my personal preference would be to pierce the veil of incorporation for pretty much all small businesses.

 

It is most definately not over simplification. Employment law quite clearly delinieates an employee adequately, one of which is a contract of employment. The business/corporate rules clearly define how a business must operate. Thus we have quite clear and distinct status. Where we are currently is that HMRC have been allowed to use employment law to dictate tax law and have been able to "deem" status. Tribunals need to throw out cases brought by HMRC at the outset when there is a clear, mutual and reciprocal contract for services between the end client and the freelancer, irrespective on how many intermediaries are in place. This is how business operates every day.

Lastly, let us not forget that the "veil of incorporation" has been forced on freelancers by previous and similiarly logic devoid legislation (S134a).
 

Utter tosh!

ThornyIssues | | Permalink

Kate Cottrell wrote:

 

The guidance has been published today.  See here:

http://www.hmrc.gov.uk/news/index.htm

 

Complete and utter tosh! The tests and scoring create sufficient FUD (fear, uncertainty and doubt) to ensure that those with a vested interest in providing contract reviews and insurance continue as is. The tests completely ignore case law and are therefore useless. So final determination will continue to be via tribunal with all the encumbant cost to the taxpayer.

"The IR35 Forum has helped us to draw up a set of ‘business entity’ tests."
Erm, no! As I understand it HMRC totally ignored IR35 Forum input and advice ...... from all but one member. "If you are in either the ‘high risk’ band or the ‘medium risk’ band, there is a risk that we will check whether IR35 applies to you. And this risk is not low." FUD, FUD and more FUD. How are they going to know that you have scored "high" and therefore exposed yourself to a high risk of IR35 status check? Unless of course the tests are not truely confidential of course.

John Stokdyk's picture

Business entity test guidance published

John Stokdyk | | Permalink

It appeared around lunchtime today. You can follow the links to HMRC's own document by clicking Kate's comment above, or from our summary article IR35 business entity tests published.

Having whetted your appetites over the weekend, perhaps you can start "going overboard" there, or continue the conversation in our specialist  IR35 reform discussion group.