Any news/opinions on the proposed new IR35 tests?

Some very interesting material is coming out of Shout99 and other specialist contractor sites such as ContractorCalculator.co.uk after the main questions for a proposed new IR35 test were leaked on line - but without any back-up guidance.

The questions included:

  • Premises used other than home or client?
  • Have you had the opportunity in the last 24 months to make more money by being more efficient?
  • Number of employees and what proportion they generate.
  • Are you a Friday to Monday classic IR35 worker to contractor?
  • Have you been unable to recover payment in excess of 10% annual turnover.
  • Have you used a substitute?

However, before getting too stuck in, let me quote further from Shout99's editor, Sally Hughes: "These are 'leaked' questions, which have not been confirmed as the final version. The advice to freelancers at the moment is not to be too concerned about these until the final version is released by HMRC together with accompanying guidance notes."

Kate Cottrell from Bauer and Cottrell, a member of the IR35 Forum, commented in another thread in this group: "I recommend that you wait a week or so and you can take the real official test which should be published on HMRC's web site together with supporting guidance.  This is the actual test and does not contain any additional questions that have not been agreed.  The IR35 Forum will continue to meet throughout the trial period next year and you can provide input direct to HMRC or via Forum members.  I will be happy to take this for you. The business entity test will be trialled against cases that have been selected for investigation.  It is important to remember that this is NOT an IR35 status test it is simply feeding into HMRC risk profiling.

That was just under a month ago, but Cottrell has been advised that after a period of strenuous back-room negotiation and review, the tests and guidance are due to be published shortly after 7 May .

The PCG was involved in developing the test questions and put them forward to the OTS during the small business review and to the IR35 Forum. While HMRC has agreed to incorporate these tests as part of their risk profiling procedures, the PCG is frustrated that HMRC has ignored additional questions that would give businesses a more rounded set of risk indicators. 

Is anyone else in this discussion group a party to the IR35 Forum, or can cast further light on the tests? As Kate Cottrell noted, the questions will form the basis of a 12-month pilot scheme, but it would be interesting to get the principles for opposition and support lined up for when the guidance does emerge.
 

Comments

There isn't a new IR35 Test    1 thanks

davechaplin | | Permalink

HMRC have no plans to publish an "IR35 Test". The 12 questions that were recently published online were part of a "Business Entity Test", which HMRC will be using as part of new screening processes by their HMRC compliance team to identify those contractors most at risk.

HMRC stated many times before that they were going to publish the questions and new processes by the end of April, but they choose to delay this and release on the bank holiday of May 7th. So, things could well change.

These questions cannot be used to determine IR35 status, and are not part of legislation. Looking at the weightings published on 29th April 2012, it's clear that most contractors (or anyone who runs a personal service company) would be considered medium to high risk. In reality they could be replaced by one question "Are you a service company?".

As the tests currently stand, from a mathematical set theory point of view the logic is fundamentally flawed. It is a test with questions that do not align with IR35 case law and is designed to filter out non-personal-service-companies with the conclusion that anyone who isn't filtered out is therefore at risk of IR35!

Consider 3 sets:

A = non personal service companies (PCS)

B = PSC - Inside IR35

C = PSC - Outside IR35

This test basically says that if you are not in A (the compliment of A) then you are probably in B. Go figure!

It's a bit like trying to identify people in the UK by examining everyone who doesn't live in China.

Those in set C clearly need to also be filtered out as part of this business entity test compliance filter, otherwise the test adds no value what-so-ever to the administration of IR35.

Using Dave's example 3 sets

gj3133 | | Permalink

Using Dave's example 3 sets above, it is relatively easy to identify non PSCs so all we are really looking for is something that tells contractors whether they are clearly outside IR35, clearly inside IR35 or whether it is not clear cut.  Of course, in many cases it will not be clear cut and my concern with this test is that it won't make things easier for anyone if the test simply concludes that a contractor still just looks like they MAY be within IR35.

Of course, the Revenue may have concerns that, if they make it too easy to identify what takes someone clearly outside IR35, then most contracts and presumably actual working practices may move to encompass those factors.  But then isn't that the point - we need a clear tax system - if people can arrange their affairs to pay less tax then that is perfectly acceptable but they and the Revenue should be able to conclude that they HAVE arranged their affairs in such a way.

Victim Tests

ThornyIssues | | Permalink

The Business Entity Tests are nothing of the sort and are 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.

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 IR35 cases 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 real businesses operates every day and will negate HMRC's capability of "deeming" employee status for tax purposes.

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Group: IR35 reform group
A gathering point and debating forum for those who want a resolution to the IR35 issue.