IR35 Employment Status Test
Here is the long new IR35 Employment Status test for contractors who work in the public sector.
HMRC devised it after the Government said that contractors in the public sector would no longer be able to decide their own IR35 status.
Whether they are inside IR35 or outside it will be the decision of their client, the public sector department.
Judges and both Special Commissioners and General Commissioners struggle with this.
So people with full time jobs at Government departments are hardly like to be experts in IR35 law.
IR35 Status Test
So, HMRC have come up with a test to help them decide the IR35 status of their contractors.
They can make their contractors take the test.
If the contractor passes the test, he, or she, can continue to operate through personal service companies.
If they do not, their agency will have to deduct the full amount of tax and national insurance from their income.
IR35 Test Rigged
There’s a major problem here. HMRC say that they expect that it will show 90% of contractors to be inside IR35.
However, at the moment, more than 90% of contractors currently declare themselves to be outside IR35.
And when HMRC investigate contractors for IR35 they usually lose the case.
This new IR35 Employment Status test has no basis in law.
Test Based on HMRC’s Opinion
It’s only based on HMRC’s opinion as to what makes a contractor fall inside or outside of IR35.
And, one has to say that they not independent in this respect.
An independent body should create this test.
In normal business practice, a person or body who has an interest in the outcome would recuse themselves from the decision-making process.
Appealing the IR35 Decision
If a contractor fails the IR35 Employment Status Test they can appeal the decision – to HMRC.
Again, HMRC are an interested party here.
So, not only are HMRC the judge and jury as regards the initial test, they are the judges at the Appeal too.
There is a further danger for contractors too who sit the test.
Their details are sent to HMRC.
Operating Through Personal Service Company
If they have previousely operated through a personal services company but fail the IR35 test, they are prime candidates for investigation by HMRC for their previous contracts.
So, it is a big risk even taking the test.
Contractors should take our advice and take the test beforehand before submitting themsleves to an official test at their client’s.
Private Sector Contractors and the IR35 Test
So, can contractors in the private sector relax?
Has this nothing to do with them?
The suspicion is that this is just the pilot project for the Government and HMRC.
It is easy to do for them in the public sector as they are the employer.
However, if it works well in the public sector and brings in much more money in taxes for the Government, the suspicion remains that they will be tempted to use it in the private sector too.
How many private sector clients would be happy to run the risk of having to pay a contractor’s back taxes with interest and penalties if they allow a contractor to operate through a personal service company when they are ineligible to do so?
Take the IR35 Employment Status Test
So what is your employment status as regards the IR35 tax?
Take the test here – IR35 Status Test for Contractors
How did you do?
Do you think it is a fair test?
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