IR35 is concerned with companies as intermediaries providing personal services, rather than them being provided personally as an employee.
HMRC is trying to lay down the law by publishing a risk based scoring system to decide whether a company is at a low, medium or high risk of being assessed for IR35. While the principles have been in place for several years and there are many case law decisions it is a radical step to rationalise these. The risk levels are as follows:
| More than 20 | Low risk |
| 10 to 20 | Medium risk |
| Less than 10 | High risk |
The tests are as follows:
| Test | Response | Score |
| Do you operate from an address independent of home and end client | Y | 10 |
| Do you need professional indemnity insurance? | Y | 2 |
| Could you increase you income by working more efficiently (eg finishing fixed price contract early) | Y | 10 |
| Do you engage workers who bring in at least 25% of yearly turnover? | Y | 35 |
| Have you spent more than £1200 on advertising in last year? | Y | 2 |
| Have you been employed by same company doing same job under PAYE? | Y | -15 |
| Do you have an up to date business plan and business bank account? | Y | 1 |
| Would the business have to bear the cost if anything went wrong? | Y | 4 |
| Have you been unable to recover debts for work done in last 24 months or 10% of annual turnover? | Y | 10 |
| Do you invoice before being paid and negotiate payment terms? | Y | 2 |
| Is there a right of substitution? | Y | 2 |
| Has a substitute been used in the last 24 months? | Y | 20 |
This is a pretty blunt tool, in reality it needs some of the big number tests to be answered yes in order for there to be any chance of keeping in the low risk band. It is clearly biased in favour of HMRC and no doubt there will be challenges from PCG and others in the future. For the full text click on HMRC IR35 Guidance.
These facts are based on our understanding of the latest guidance. For specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”