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.

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