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New IR35 guidance recently published by HMRC
30 June 14 | By: Jas Jhooty
HMRC has recently published new IR35 legislative guidance as a result of a House of Lords review. The House of Lord’s review was highly critical of HMRC’s approach to IR35 legislation and this new guidance has been published to make IR35 more “user-friendly”.
Indeed this new guidance is quite helpful as HMRC have incorporated handy weblinks that point to various other HMRC sites and relevant documentation where more detailed information can be easily obtained.
Business entity tests
HMRC’s business entity tests are also referenced for contractors to assess their level of risk. Factors such as: -
- The Business Premises test
- The Professional Indemnity Insurance test
- The Efficiency test
- The Assistance test
- The Advertising test
- The Previous PAYE test
- The Repair At Own Expense test
- The Business Plan test
- The Client Risk test
- The Billing test
- The Right of Substitution test
- The Actual Substitution test
are all pointed. If the business entity scores particularly low in these tests there is a very high risk that IR35 legislation will apply to affected contracts.
HMRC contract review service
Details of HMRC’s (apparently) confidential IR35 helpline are also provided along with a free contract review service. In one of these reviews HMRC will express their opinion of whether or not IR35 is to apply or not, but only after a raft of information is submitted to them including the:-
- worker’s National Insurance number
- company’s HMRC reference number
- company’s postcode
Any claims by HMRC that this service is confidential after requesting this type of information must be taken with a massive pinch of salt. If you disagree with their opinion, the case will be fast tracked to the local IR35 inspector.
If IR35 applies
The guide then goes on to describe the consequences of IR35 being deemed to apply to a contract. The rules for working out the deemed employment income that needs to be subjected to PAYE for tax & NIC deductions after taking into account the 5% expenses allowance are explained quite succinctly.
The guide then spells out what happens during a formal IR35 enquiry. If the business entity previously used the HMRC contract review service they will have been provided with a reference number that they can give to the enquiring Inspector. The IR35 inspector will check to ensure that the information previously sent to the HMRC contract review service was accurate and that the circumstances have remained the same.
If at the end of an IR35 enquiry it transpires that IR35 should have applied but wasn’t, the financial impact in terms of unpaid income tax & NIC (as well as the interest & penalties position) is described with relish.
How emTax can help
This new guide is useful as it brings together various disparate sources of information about IR35 in one document. However there is nothing new contained within it that wasn’t already in the public domain. It is our opinion that one of the main reasons this new document has been published is to re-advertise the existence of HMRC’s contract review service. HMRC’s active encouragement for contractors to use this service can only be likened to trying to convince turkeys to vote for Christmas.
If you have any doubts of whether or not you may fall foul of IR35 legislation, our advice is to seek professional advice from one of our employment tax consultants who can tailor your contracts to match what happens in practice to reduce your risk of falling foul of IR35 legislation.
For more information about this or any other employment tax matter, please do not hesitate to contact us.