Categorized | matt's blog

The one-minute IR35 test

Last week I wrote about how the new IR35 test, introduced by HMRC, was quite flawed and could be used to prove that Father Christmas was indeed – an employee of our family.

To show a balanced view, it is important that we look at a real test and how it would give a more fair and equalised opinion.  It would be tempting to just give an opposite assessment to the questions already asked by HMRC, but this wouldn’t really be very useful as a tool. So, what I have devised is a system of questions that will actually separate consultants/contractors in business, from their disguised employee counterparts.

Note – in order to be considered outside the scope of IR35, you would need to state “no” to every question. There is no half-way house here and so a points system is futile and erroneous. Also, this test is only the beginning of your status check and is not currently accepted by HMRC. (Even though it probably should be).

  1. Are you protected by UK Employment Law and have rights as an employee under the Employment Rights Act 1996?
  2. Is your client required to auto-enrol you into a pension scheme as from 1st October 2012?
  3. Is your role at the client already covered by their actual employees?
  4. Have you and your client conspired to make you a sub-contractor when you could easily have been an employee?
  5. If your client was to become insolvent or the company was placed into administration, would you be able to apply to H M Revenue and Customs for redundancy?
  6. Are you confident your client will keep you on as a consultant, once they start to make regular employees redundant?
  7. Are you given an annual review by a line manager and this affects your agreed price for performing the contract?
  8. Would your business rent an office if you didn’t need one? It is important to understand here that not every business has an office – window cleaners for example.
  9. Have you sub-contracted any of your work to a third party, even if you didn’t need to or it would not be cost effective? A good example of this would be a mobile hairdresser taking along a junior stylist with them in the car, for literally no reason.
  10. Would you spend money on advertising in the full knowledge that potential clients don’t visit websites where you pay to advertise?
  11. Have you got so far behind in your invoicing, that your client has gone bust without your knowledge, but you carried on working there anyway?

If you can answer no to all 11 of these questions, then you are part of the way to actually being in business on your own account. This does not mean you should act outside of IR35 without taking the proper advice, all of your circumstances and business practice need to be looked at. However, it is a better indicator than a test designed to make Father Christmas my newest member of staff.

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