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Uncertainty over IR35 business entity test

Doubts have been raised over the proposed IR35 business entity tests, after it has emerged that HMRC is in disagreement with many members of the IR35 Forum – the body set up to help overhaul the current IR35 regime.

The IR35 Forum is a body of industry and accounting experts, formed following Budget 2011 to propose methods to improve the way IR35 is currently administered. The Forum has met at least six times, and is attended by a number of HMRC officials.

Proposed business entity tests for IR35 status

The latest Forum minutes from 21st February and 8th March (published here in PDF format) show that a new IR35 business entity test together with a set of typical IR35 scenarios may be published online within weeks.

The minutes note that there were “disagreements over the exact scoring of some of the tests and it was suggested that extra tests could be incorporated.”

Another concern was that many businesses taking part in the test may be left with a ‘medium risk’ score, which would not reflect the real word situation, where most businesses would be at a low risk of an IR35 investigation.

Despite this, the minutes suggest that a general consensus had been reached that these concerns could be met and finalised by correspondence.

However, it now appears that the disagreement between HMRC and Forum members over the wording, and score-weighting of the proposed test is significant.

Growing rift between HMRC and business organisations over IR35 tests

In its assessment of the most recent IR35 Forum activity, PCG, the leading contractor organisation, and member of the Forum, made its concerns clear:

On the wording of the IR35 business entity test, the PCG believes that the current proposed questions are insufficient, and don’t give businesses in their own account enough of a chance to show that they are at a low risk of being caught by IR35:

“PCG have tabled additional tests which would be effective risk indicators and would give genuine businesses greater opportunity to demonstrate their low risk status.  For now these have been rejected by HMRC.”

The scoring of the test itself has caused a difference of opinion to grow between HMRC and Forum members, according to PCG:

“If the tests are scored in such a way that it is difficult for businesses to be placed in the low risk bracket, they will offer no improvement at all. ”

In the meantime, PCG members have been invited to take the proposed test, before they go live in an official capacity. You can find out more on the PCG website.

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