They’ve been a long time coming, but HMRC have finally released their IR35 Business Entity Tests and Example Scenarios. These tests are designed to help freelancers and contractors self-assess their IR35 risk status – low, medium or high.

The results of the Business Entity Tests will then be used to decide how likely you will be to undergo an IR35 investigation (obviously, those in the “high risk” category will be more likely).

There are twelve tests in total, each carrying points ranging from a disheartening -15 to a massive 35. If you score over 20 in total, you will be categorised as “low risk”. Between 10 and 20 is “medium risk”, and below ten is “high risk”. HMRC say, slightly confusingly, that:

If you are in either the ‘high risk’ band or the ‘medium risk’ band, there is a risk that we will check whether IR35 applies to you. And this risk is not low.

The weighting of the tests (which caused so much consternation between HMRC and the PCG) is as follows:

  • The Business Premises test – 10 points
  • The PII test – 2 points
  • The Efficiency test – 10 points
  • The Assistance test – 35 points
  • The Advertising test – 2 points
  • The Previous PAYE test – minus 15 points
  • The Business Plan test – 1 point
  • The Repair At Own Expense test – 4 points
  • The Client Risk test – 10 points
  • The Billing test – 2 points
  • The Right of Substitution test – 2 points
  • The Actual Substitution test – 20 points
At first glance the tests seem like something of a blunt instrument, and certainly leave space for plenty of loopholes and get-outs, although HMRC say in the document that the tests are for guidance only, and help with assessment, but won’t matter if you become the target of an actual investigation.

If you want to take the tests yourself, get stuck in here with the full report.

Learn more about IR35 on our YouTube channel

Photo by Bob n’ Renee

  • Jaffa Brown

    This is madness.   What on earth is the “Client Risk Test” all about???   So if you have lost 10% of your revenue to bad payers, this makes you a legit company does it?  Who on earth has come up with these?  Oh of course, the HMRC.    They are missing the “Can you drink 15 pints whilst singing the German National Anthem backwards” test (worth 50 points I hear).  Madness!!!

    • I feel a “suggest new additions to the IR35 business tests” post coming up 🙂

  • Isn’t guidance supposed to make stuff simpler?

  • Grahamroper

    Clearly the weighting of the scores for the questions is biased in HMRC’s favour. For instance, there is a question regarding “£1200 of Advertising” – yet there is no question regarding professional training costs which can total thousands of pounds! No wonder there is a big disconnect between the PCG and HMRC on the questions and the weighted scores. There is also no question on capital equipment outlay – why not? I have to provide my own business equipment and it’s not cheap!