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Has the latest HMRC guidance changed how contractors should comply with IR35?
Posted May 18, 2012
The publication of new HMRC IR35 guidance has been a big event for contracting news sites over the past few weeks.
The business entity test itself has been universally criticised by industry experts and contractors, and has done little towards achieving its original goal of providing more certainty to those potentially affected by IR35.
Judging by the contents of our inbox, and hundreds of comments posted on business forums (read a typical example here), most contractors simply want to know how the new business entity test affects them, and if there are any extra steps they should take to comply with IR35.
Ricky Coleman from Lawspeed told us what contractors should do in light of the new IR35 guidance:
"In short, the new guidance has not changed much. It has given contractors a way of assessing the overall risk of an investigation into their company as a whole. However it has not changed the fundamentals of IR35 in terms of how an assignment can be carried out in a way which falls outside of the legislation. Principles such as control, personal service and financial risk are just as important now as they were before the guidance. Indeed, the examples given by HMRC in the later pages confirm this.
"One positive that can be taken from the guidance is that it allows contractors to understand the weight that HMRC gives to particular indicators of self-employment. This is achieved by looking at the score awarded for each indicator. Advisors can now be certain that actual substitution, which can be evidenced on a previous project, is a far more convincing factor of self-employment than merely having a substitution clause in the contract, which before now was seen as sufficient by some.
"The usefulness of the 'business entity test' is therefore limited and it is still advisable to seek expert advice on each separate assignment, regardless of the risk level given to the company as a whole."
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