In IR35

HMRC has finally published its new business entity tests – and they are every bit as bad as leading industry figures from the IR35 Forum feared, being weighted in such a way as to place most contractors working through limited companies in medium to high risk categories.

HMRC appears to have completely disregarded advice given by a plethora of organisations, including the Federation of Small Businesses (FSB), the Association of Professional Staffing Companies (APSCo), the Freelancer and Contractor Services Association (FCSA) and, of course, the PCG and REC. Instead, it has ploughed ahead with its own selection of questions and its own weighting system, wholly unmodified by key suggestions for improvements.

There are significant changes to the administration of the regulations, however, including an improved helpdesk, clearer guidance, better trained Revenue teams and more detailed IR35 scenarios; however, the business tests are widely perceived as a retrograde step.

APSCo’s Ann Swain expressed her organisation’s “exasperation” at HMRC’s refusal to listen, while PCG Chairman Chris Bryce said:

“HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed.”

The FCSA’s Martin Hesketh condemned the tests for pushing a “disproportionate number of businesses into the high risk category,” a move which will obscure the identification of genuinely high-risk cases.

The tests may evolve over the coming 12 months, but expect the ranks of those opting to work through umbrella companies to swell.

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