Revised Guidance for Self Employed

HM Revenue and Customs (HMRC) have published new guidance intended to help personal service companies determine their correct employment status.

HMRC will take a risk-based approach to consider how likely it is that they need to check whether IR35 applies to your individual circumstances. To gauge this, they will look at how your business works and assess which of three risk bands is appropriate – low, medium or high risk. Low risk means that the likelihood that HMRC will check whether IR35 applies to you is low, and so on.

The guidance has 12 business entity tests with points allocated according to your answers to the questions posed. Your overall score indicates the appropriate risk band for your business. The questions come under the following headings:

1. Business premises;
2. PII;
3. Efficiency;
4. Assistance;
5. Advertising;
6. Previous PAYE;
7. Business plan;
8. Repair at own expense;
9. Client risk;
10. Billing;
11. Right of substitution; and
12. Actual substitution.

The business entity tests look at a business as a whole in order to gauge how likely it is that it has entered into an engagement to which IR35 applies. They do not focus on individual engagements. The guidance does, however, include example scenarios to illustrate when and why IR35 will apply to an engagement and when and why it will not.

HMRC stress that the guidance is not intended to be a comprehensive guide to IR35 and each case will be determined on its own facts. Its purpose is to enable contractors to work out which risk band they are in and decide what action to take.

View the guidance.

For advice on any tax matter, contact DFA Law employment expert Gary Lee.