IR35 Guides - Are you inside or outside IR35?

Although the release of new HMRC guidance has made no difference to the underlying IR35 legislation itself, it could signal the start of a concerted effort by the tax authorities to carry out an increased number of compliance reviews.

Most contractors 'at risk' according to IR35 test

The business entity test is intended to be used by individuals (or 'businesses') to assess how likely they are to be selected for an IR35 review.

However, as many commentators have noted already, the majority of contractors taking the test are likely be at a 'medium' or 'high' risk of attracting HMRC's attention.

Martin Hesketh, MD of Brookson, said:

"The tests included and the scoring adopted simply confirms the already easy to recognise 'low risk' businesses. They do not bring any improved clarity or certainty to any of the 'medium' risk taxpayers that the originally proposed business tests were designed to address."

Legal expert, Roger Sinclair from Egos, said that the main point of the tests is to establish whether or not you are 'in business on your own account', not whether or not your are caught by IR35:

"HMRC now appear to accept that those who can do that are indeed IBOYOA, and for IR35 purposes they will then leave you alone."

New specialist HMRC IR35 compliance teams

Although the new guidance has not affected the Intermediaries Legislation itself, now contractors face the additional burden of trying to score as many points as possible on the IR35 business test in order to escape the unwelcome advances of the newly created specialist compliance teams:

Seb Maley from Qdos Consulting commented:

"There is almost certainly going to be a significant rise in the number of IR35 enquiries in the coming months. HMRC have created three specialist teams specifically tasked with carrying out IR35 reviews, so there will undoubtedly be a noticeable hike in investigations.

"Nevertheless, the legislation itself and HMRC's powers have not changed at all. Many enquiries, therefore, will probably start in the same way as before, which is normally via a 'routine' Employer Compliance Review. It is likely that there will also be specific new letters directly informing contractors of an IR35 review."