HMRC publishes new IR35 test

HMRC has begun the process of overhauling its operation of the IR35 regime for personal services companies with new guidance that sets out some basic risk factors that will affect a contractor’s chances of being investigated. This overhaul will mean an increase in the number of IR35 investigations, the tax department confirmed.

The new guidance includes 12 business entity tests, each one receiving a different score, and they are designed to build up a picture of how a contractor’s business works and how they provide their services. These tests and their individual scores are:

1. Business premises test - Does the business own or rent business premises separately from the contractor’s home or end client’s premises? (10 points if yes)
2. PII test - Does the contractor need professional indemnity insurance? (2 points if yes)
3. Efficiency test - Has the business had the opportunity in the past two years to increase its revenue by working more efficiently? (10 points if yes)
4. Assistance test - Does the business employ any workers who bring in at least 25% of the yearly turnover? (35 points if yes)