New IR35 business tests - opinions?

jaketownsend

Having seen that HMRC has released new guidance on IR35, it appears that the IR35 rules themselves haven't changed, but that HMRC intends to investigate the tax affairs of limited company contractors/freelancers in a more aggressive way.

Although we're told IR35 hasn't changed, the guidance suggests that contractors need to score highly in the new business test to avoid being investigated (20 points +)

Is this just scaremongering, or should contractors actively make new efforts to comply?

Thanks, JT

chrismac1

It's utter tripe. See my comments - and those of others - on accountingweb for more details.

To take just one example, apparently a genuine business has 10% of sales in bad debts.

WAKEY WAKEY HMRC NUMPTIES

More or less any business which has 10% of its sales in bad debts is BUST.

In terms of how you deal with IR35 in practice nothing has changed:

1. HMRC lose more or less every IR35 case, there is not an iota of commercial nouse in the place apart from their top guys who all get paid through their one-person limited companies!

2. However, if HMRC can throw over £1.5m at the Jones a.k.a Actic case to get a maximum of £50k of tax for the country, then anyone with a status risk could be in the same boat. So I insist all my clients with this risk take out tax investigation insurance.

3. I also insist that they keep diaries. For example when one client came in during shut down week but the staff were all on their hols, that went in the diary. IR35 cases have turned on seemingly tirivial matters like the contractors having to park in the street not the company car park.

In a nutshell, over time every at risk client builds an armadillo-like shell with real examples of why their status is as a genuine contractor, plus they have access via the insurance to some of the best IR35-experts in the country who will write every letter should we ever get a status-based letter, even if it be only a "fishing trip".

So - to the HMRC numpties - bring it on!

jaketownsend

Thanks Chris,

I think the main problem is that most contractors fear being investigated itself. Presumably, with the type of specialist IR35 insurance you've mentioned, will the insurer deal with correspondence from Day 1?

It's the scaremongering which has driven plenty of contractors into umbrella co's, when they'd obviously be better off limited.

I'll check Accounting Web.

JT

chrismac1

Yes. You ensure such cover is "soup to nuts" cover - in other words from the moment you get the very first letter, you have the specialist replying to HMRC and being seen to reply - though whether that is a big deal depends on whether anyone in HMRC reads letters properly any more which in all sincerity I seriously doubt.

Pennywise

Yep, agree with Chrismac fully. The new IR35 business tests are truly ridiculous and don't add anything at all to the fiasco that is called IR35.

Take the substitution - to get a decent amount of points, you need to have actually used a substitute, and you get very few points for the ability to use one. So it's like a punishment for not getting ill and not needing a substitute, or a bonus if you do get ill and need to send someone else. Crazy or what?

Just like the 10% bad debt rule - where did that come from. 1% bad debt is bad enough for most companies. 10% would indeed cause most firms to go under. But, hey, that's OK, you go bankrupt so you know that IR35 is less of a problem.

What numpties they are! None of it actually relates back to all the court cases HMRC lost!!

SteProud

I did see an excellent summary of the new business tests here

http://www.companybug.co.uk/hmrc-ir35-business-test-launch/

The bad debt test is just bizarre but so are most of the others. The business premises test being one example, the substitution test as mentioned by other posters and the advertising spend.

Most of the contractors we work with have spent years building up networks of contacts which makes marketing irrelevant.

jaketownsend

Thanks SteProud - I couldn't post a link to the questions as I'm a 'newbie', but that summary shows what a joke the scoring is.

So, if I have a dedicated business bank account and a business plan that I update regularly, I earn 1 single point?

But, as mentioned earlier, if I have bad debts totalling 10% over 2 years (and haven't gone under!), I get 10 points.

It'll never work.

TM1976

Now they've laid down some rules on IR35 it might be easier to get around it than before, such as.

You get 10 points for a separate business premises, perhaps it makes it worth renting a small serviced office?

Have you been unable to recover payment for a client at some time in the past 24 months worth at least 10% of your annual turnover? (‘Yes’ scores 10 points) - why not try billing your client for things you know they won't pay so they can reject them and you get another 10 points?

Spending money on advertising gets 2 points. OK, you've got to spend £1,200 in a year but it might be worth doing it if it makes a difference. You might already be paying something but not considering it, such as Linkedin subs?

PI insurance gets 2 points. Perhaps you really should have this anyway.

You get a point for having a business plan. You probably don't need one but it's quite easy to do a simple one if you need to.

Having said that it still doesn't give any definitive guidance on what criteria HMR&C will use when the "check", as thay put it, if you are a part of IR35 or not which is ultimately no better than the previous position.

I read somewhere that HMR&C has raised a total of £200k to date from IR35. Ultimately the extra tax the government raise from IR35 probably will never be enough to cover the cost of deteriming if contractor falls within it when you have to look at each one on a case bey case basis.

Pennywise

TM1976 wrote: »

Now they've laid down some rules on IR35 it might be easier to get around it than before...

TM1976 wrote: »

...it still doesn't give any definitive guidance on what criteria HMR&C will use when the "check", as thay put it, if you are a part of IR35 or not which is ultimately no better than the previous position.

Exactly why it's completely pointless and yet another waste of time. The "tests" are only a risk factor indication. They don't influence the end decision as to whether IR35 applies or not. 99% of contractors will fall into the medium risk category so what on earth is the point of it? Even if you get a low risk score, do you really think that HMRC will simply walk away once they see an actual contract which clearly points to IR35 applying - they'll just ignore the risk assessment and pursue the case anyway. I don't think the risk assessment will ever be used in practice - they're just something dreamt up by a committee of people who don't appear to have any real life experience. IR35 hasn't worked and will never work - the sooner they scrap it, the better - they're just destined to another year of wasted time and money trying to defend the indefensible.

SteProud

At a time when the Govt is supposed to be encouraging innovation and entrepreneurship to get us out of recession (because let’s face it, they aren't going to borrow their way out any time soon and we are in no position to build our way out) surely the Govt should be doing everything they can to encourage contractors and freelancers? It’s a massively valuable source of cost effective expertise for UK PLC.

TM1976 makes some valid points but why should a small business waste time and money when it could be fee earning and growing the business and therefore making more of a contribution through CGT and Corp Tax than they ever would being judged a disguised employee?

John_Pierpoint

This nonsense all dates back to the 50's and 60's and "the lump".

So OK there is now a nasty problem in Eire (and over here) with those who never managed to pay their National Insurance - but those by and large are NOT the sort of labour we are talking about in the context of IR35.

We now have an economy of criminals [or is it just where I live?] all trying to do jobs on the side. Honest businesses, who have to stick by the rules, struggling to stay in business because they cannot afford to take on labour they might get stuck with.
Surely the answer is to allow those what have the skills, talent and attention to detail to run a company AND PUT UP A BANK / INSURANCE GUARANTEE against doing a runner, to learn all the skills skills that his nation is going to need to survive in a world economy? Those who cannot can be self employed on something like the CIS scheme.
I think there are many couples only too ready to take their chances on something like the "Arctic Systems" model.