Limited company contractors will be subject to a new IR35 Business Test and six IR35 risk scenarios from April 2012. HMRC’s planned IR35 Business Test appears to closely resemble ContractorCalculator’s Free Online IR35 Test, putting a series of weighted questions to contractors and using the results to place contractors into high, medium or low IR35 risk profiles.
HMRC has confirmed its earlier commitment to review contractor’s businesses as a single entity, rather than on a contract by contract basis. This is likely to place a greater emphasis on a contractor’s ‘badges of trade’, such as investing in a website and having multiple clients.
Despite debate at recent IR35 Forum meetings that the content of the questions should be put out to consultation before coming into force, it was agreed that the IR35 Business Test will be published in April 2012, because “in essence the business test is HMRC’s guidance regarding [contractors’] compliance risk; it’s not a legislative change to IR35”.
HMRC also plans to publish in April 2012 six of the seventeen new contractor scenarios the IR35 Forum has developed. These are designed to reduce the room for interpretation as to whether or not a limited company contractor is inside IR35, and will hopefully add clarity to contractors, their advisers and HMRC itself. The first six IR35 risk profile scenarios, which are not sector specific, will comprise:
- Two scenarios where the contractor is inside IR35
- Two scenarios where the contractor is outside IR35
- One scenario in the grey area of disagreement between HMRC and the Forum
- One scenario where the contractor starts outside IR35 but, during the course of the contract, moves inside IR35.
The final outcome of the IR35 Forum meetings held in February and March was an agreement to develop a code of practice for and to educate contractors, recruiters and contracting services firms. This initiative will be led by the non-HMRC members of the Forum.