IR35 affects all contractors who do not meet the Inland Revenue’s definition of ‘self-employment’.
So firstly you should establish whether you are ’employed’ or ‘self-employed’ under HMRCs terms. The Inland Revenue state that they will take an overall view of a contractor’s position to determine whether they will be deemed ’employed’ under the rules, therefore any amended contracts should also reflect your working practices.
It is clearly in all contractors’ interests to be viewed as ‘self-employed’, or at least for part of your income to be IR35-free. If you are able to diversify your business interests, or change your working practices in order to satisfy more of the pointers to ‘self-employment’, your position will be strengthened.
HMRC use a risk-based approach when considering how likely it is that they will check whether IR35 applies to you. They grade the risk as low, medium and high (high being that you are more likely to have an IR35 review).
The business entity test considers twelve key aspects of your business and how you provide your services.
- Business premises
- Previous PAYE
- Business plan
- Repair at own expense
- Client risk
- Right of substitution
- Actual substitution
If you score less than 10 you are deemed as HIGH risk, 10 to 20 you are deemed as medium risk and more than 20 you are deemed as low risk.
Once scored you are advised to gather and retain as much evidence as possible in order that you can provide HMRC with the evidence to satisfy that you are indeed ‘low risk’. It is advisable to evaluate your risk on an annual basis just in case your circumstances have changed, again you should gather and retain evidence.
The test is relatively simple and can be conducted by you as you are the one that knows your business and contracts the best.
Click IR35 TEST to download a copy of the test.