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HMRC have published guidance on business entity tests for the purposes of the intermediaries legislation, known as IR35.
It provides information about the department’s risk-based approach to checking compliance, and explains how taxpayers can work out which risk band they are in with the help of the new tests.
There are tests: business premises, personal indemnity insurance, efficiency, assistance, advertising, previous PAYE, business plan, repair at own expense, client risk, billing, right of substitution, and actual substitution. A taxpayer scores points according to the answer given.
HMRC have emphasised the voluntary nature of the tests, adding, ‘We may update them in response to feedback and business changes.’
Grant Thornton’s head of tax, Francesca Lagerberg, remarked, ‘We now have a points-mean-prizes approach to IR35, with the more points you earn leading to the less chance HMRC will want to investigate your tax affairs.
‘This is intended to be helpful, although it is purely guidance and is not based on law. Some of the tests look a little arbitrary. For example, why is advertising relevant to a business that gets all its work from recommendation?’
Last year, the Office of Tax Simplification recommended that either IR35 be suspended with the intention of permanent abolition, or the legislation be left unchanged but with improvements to the way it is administered.
Ms Lagerberg wondered ‘if perhaps the braver option for government would have been a more radical overhaul of this area, rather than this type of exercise’.
