IR35 Test | IR35 Business Entity Test for contractors & freelancer
IR35 Business Entity Test
HMRC, in conjunction with its partners like the Professional Contractors Group in the Government sponsored IR35 Forum set up to make IR35 clearer, have now set up a series of questions in an IR35 Business Entity Test which they will put online to help contractors get an indication of their IR35 status.
If they pass the Business Entity Tests they will not have to sit another one for three years.
See if you are caught. Add up your points and see if you are at high, medium or low risk of being inside IR35.
Business Entity Tests
1. Does your business own/rent separate business premises which are separate from your home and client‘s premises?
Yes = 10 points
2. Do you need professional indemnity insurance?
Yes = 2 points
3. Has your business had the opportunity in the last 24 months to increase your business income by working more efficiently e.g. by finishing the work/project earlier than projected but still receiving the full agreed payment?
For example you originally agreed with the client/engager that the work would take 3 months and cost 10,000 but you finished in 2 months and still received the full 10,000 at the end of the 2 month period.
Yes = 10 points
4. Does your business engage one or more workers who generate at least 25% of your business turnover annually?
Yes = 35 points
5. Has your business invested over £1,200 on advertising, excluding entertainment in the last 12 months?
Yes = 2 points
6. Have you been engaged on PAYE employment terms by your current client/end user within the last financial year with no significant changes to your working arrangements?
If you are doing the same work you should answer yes to this question. Current engager also includes working at a different location owned by your engager or working at a different company but which is connected e.g. part of the same group.
Yes = minus 15 points
7. Does your business have a business plan with cash flow forecast, that is regularly updated, and a business bank account which is separate from your personal account and identified as a business bank account by the bank?
Yes = 1 point
8. Would your business have to bear the cost of having to rectify any mistakes?
Yes = 4 points
9. Has your business been unable to recover payment for work done during the last 24 months in excess of 10% of annual turnover?
Yes = 10 points
10. Do you invoice for work carried out prior to being paid and negotiate payment terms?
Yes = 2 points
11. Does your business have the right to send a substitute?
Yes = 2 points
12. Has your business hired anyone in the last 24 months to do the contracted work you have taken on? This could be demonstrated by sending a substitute in your place or by sub-contracting, but in both cases your business remains responsible for the work and for paying the substitute or sub-contractor.
You can still pass this test if you had to notify the end client of the name of the individual you sent as a substitute.
Yes = 20 points
IR35 Business Entity Test results
0-9 points = High Risk
10-19 points = Medium Risk
20 points and over – Low Risk
IR35 Scenarios
HMRC have also come up with a number of scenarios which show if you are inside or outside IR35.
Why Juanita is borderline IR35
Why Juanita is borderline IR35
Why Costas was outside and then inside IR35
Paveen has his main contract inside IR35
Umbrella Companies
If you want to know more about Umbrella Companies see Umbrella Company Information
If you want a review of some of the top umbrella companies see Which Umbrella Company
If you want advice on how to pass the test see Ten Ways to Pass the new IR35 Test with flying colours
