New guidance from HMRC on Employment Status
HMRC has published new guidance that sets out a series of 12 tests that it applies when considering contractor status and the points awarded according to the outcomes. The more points, the less chance there is that IR35 applies to that business for that contract (more than 20 points equals low risk). The tests deal with:
- owning or renting business premises separate from the taxpayer's home and clients (10 points)
- having professional indemnity insurance (2 points)
- ability to increase income by working more efficiently (10 points)
- annual advertising spend (more than £1,200 equals 2 points)
- engaging workers who bring in at least 25% of turnover (35 points)
- previous employment relationships with the end client (minus 15 points)
- having a business plan with cash flow forecasts and business bank account (1 point)
- writing off irrecoverable debts (10 points)
- bearing the costs of putting right mistakes (4 points)
- negotiating payment terms and invoicing for work (2 points)
- the right of substitution and substitution in practice (2 points and 20 points respectively).
The guidance is helpful in giving a better understanding of HMRC's approach and view of the relative importance of each test.