New Tests for IR35

HM Revenue & Customs (HMRC) have published guidance detailing their new risk based approach to checking taxpayer’s compliance to the intermediaries’ legislation (or IR35).

If you use a limited company or a partnership to provide your own services to clients then you may be at risk from the intermediaries’ legislation or IR35. IR35 is tax and National Insurance Contributions legislation which prevents people who use intermediaries from being better off than they would have been if their end clients had employed them directly. The new guidance enables a taxpayer to assess the risk of HMRC enquiring into their tax returns.

HMRC have drawn up 12 business entity tests, each test asks at least one question. A Yes answer scores points and different tests give different scores. You add up the points at the end. The points will then place you in a risk band (low risk, medium risk or high risk) and you can then use the risk bands to gauge how likely it is that HMRC may check whether IR35 applies to you. Finally HMRC have provided different scenarios to help you further assess your risk. The HMRC questions can be found at http://www.hmrc.gov.uk/ir35/guidance.pdf

Whilst this guidance is helpful it is important to note that it is not law, and that this area of tax can sometimes be difficult to work through. If you would like more detailed information on the subject of IR35 please give us a call on 01733 371180 and we will be happy to help.

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