Contracting site says HMRC IR35 test fundamentally flawed

A contracting industry site says that HMRC’s risk assessment tool, the business entity test, bears ‘little relevance to reality’, after one third of contractors deemed to be ‘high risk’ after taking the test would fall outside IR35 if the actual legislation were applied.

This conclusion was made by ContractorCalculator, which collected data from a substantial survey of over 10,000 contractors via its online IR35 status test.

Interestingly, a mere 19% of those who took the status test on the industry website, also took HMRC’s business entity test. Of those who took the HMRC test, 35% were deemed to be ‘high risk’, 41% a ‘medium risk’, and 24% at a ‘low risk’ of being singled out for an IR35 investigation.

However, upon further inspection, just 31% of those in HMRC’ ‘high risk’ category were found to be actually outside IR35 according to ContractorCalculator:

“Unlike the business entity tests, our detailed questionnaires are underpinned by algorithms based on the source IR35 legislation, case law and the results of thousands of actual IR35 reviews. IR35 experts Qdos Consulting assisted with the development of our test, helping ensure their accuracy.”

The business entity test was introduced in May last year, alongside some ‘typical IR35 scenarios’, in an attempt to help people determine the risk they face of being selected for an IR35 investigation.

The new tools represented the first step in overhauling the IR35 regime which had been criticised for its poor targeting of contractors, the length of time it took to handle cases, and the lack of certainty contractors had over their IR35 status.

Unfortunately, the survey findings suggest that the IR35 regime is still failing contractors, as Andy Vessey from Qdos explained:

“Some investigating officers are disregarding compelling evidence that should halt reviews right at the start.

“With one contractor’s case, I presented evidence that he was clearly in business and suffering financial risk, but HMRC has insisted on contacting the contractor’s client. This approach harks back to the old-style enquiries when HMRC used to contact clients in each and every IR35 case.”

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