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New IR35 Risk Assessment

In May 2012, HMRC introduced new tests to help gauge your risk of IR35 compliance visit/enquiry. These caused quite a stir amongst contractors and tax advisors alike.

It is important to point out that these Business Entity Tests are to determine your risk of an HMRC compliance visit NOT to determine whether your business falls under IR35.

In fact, it is wrong to consider a business as falling under the IR35 rules as IR35 rules apply to individual contracts rather than business entities.

The tests involve allocating points based on your responses to questions about your business as a whole (a business entity). Based on the total of these points, you can gauge whether your business as a whole is seen as being likely to have contracts that fall under IR35 or not. The tests are not designed to determine whether individual contracts are likely to fall under IR35.

The tests fall short of clarifying or simplifying the current IR35 status however, the scenarios that follow the tests prove somewhat helpful in explaining HMRC’s interpretation of the IR35 legislation and are well worth reading.

The Business Entity Tests and the related guidance including the scenarios can be viewed at http://www.hmrc.gov.uk/ir35/guidance.pdf

ACE Accounting can provide a full Limited Company accountancy package providing you and your company with all your tax, accountancy and payroll requirements for a monthly fee of £150. Please contact us to discuss how we can help you or arrange a free no obligation consultation.


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