IR35 – HMRC Publish the Tests which are to Apply to Contractors

HMRC has published the tests which are to apply to contractors to determine the risk of them being within IR35. The tests do not themselves determine whether you are caught by IR35 or not. They merely assess the level of risk into three categories, low, medium and high. HMRC will focus their enquiries on those falling within the medium to high risk band.

Whether you are caught by IR35 still depends on case law whereby the courts consider the overall picture, rather than any one particular factor. The factors which the courts take into account continue to be:

 –          Direction, Control, Mutuality of Obligations, The Extent to which you are closely identified with the entity for whom you work etc.

 (For more on this, refer to the fact sheet entitled “Self-Employed versus Employed” within the resources section of my website)

Thus these proposals and tests have changed nothing – it is also not obligatory to take the tests.

The tests are now shown on HMRC’s website here. You will see there are 12 tests with each allocated a score which when added together determine which risk band you fall into. Not surprisingly, HMRC has not listened so far to the professional bodies involved in the consultation process, with the result that the tests and the scores are stacked in HMRC’s favour to bring as many contractors as possible within the medium to high risk bands.

However, these are just proposals at the moment – we shall have to see if HMRC listen more going forward so that the tests and scores become more meaningful. Only then can these proposals which achieve what they were meant to – namely providing more certainty to small contracting businesses whether IR35 applies to them or not.

(A useful more detailed summary of the proposals has been produced by the Professional Contractors Group (PCG) and can be found here. They have also summarised the tests and scores here)