HMRC issue IR35 Business Test Guidance and Example Scenario's

10 May 2012

9th May 2012 and HMRC have today launched a pdf in respect of Intermediaries Legislation (other known as IR35) explaining their new IR35 Business Test and also providing some typical IR35 example scenario's.

The HMRC guidance starts with an explanation of what the IR35 Business Test is, what IR35 is, what the high, medium and low risk scores of the business test mean and how the test scoring works.

The result score of high to low risk is the risk that HMRC will perform an IR35 review rather than whether you are inside or outside the scope of IR35.

If HMRC think IR35 may apply to you then they will write to you to ask if you have considered IR35.

HMRC do offer free advice and will review your contract to confirm whether they consider it outside or inside the scope of IR35. If outside IR35 they will give you a reference that you can quote if you are later subject to an HMRC review.

If you are subject to a review and can prove that you are in the low risk category the review will be suspended and no further review will take place for 3 years. If not HMRC will seek further evidence to make their judgement.

If IR35 does apply to then your intermediary would have to account for PAYE and National Insurance (NIC) on your deemed payment.

HMRC do however explain that the guidance is not a Comprehensive Guide to IR35.

It explains the 12 different elements of the Business Test which are:

The Business Premises Test;

The PII (Professional Indemnity Insurance) Test;

The Efficiency Test;

The Assistance Test;

The Advertising Test;

The Previous PAYE test;

The Business Plan Test;

The Repair at Own Expense Test;

The Client Risk Test;

The Billing Test;

The Right of Substitution Test; and

The Actual Substitution Test.

The 5 example scenario’s are for the made up names Emma, Juanita, Hamish, Barbara and Costas. These examples explain HMRC’s view on people being outside IR35, borderline, outside IR35, within IR35 and finally for Costas initially outside IR35 but later within IR35 (respectively).

The full guidance is available on HMRC's website:

If you are a contractor or a person running their own small limited company and are worried about IR35 and the new IR35 Business Test please call PayMatters on 0800 121 6513.