IR35 Financial Risk – Changes in HMRC IR35 guidance
HMRC have made some changes in their IR35 guidance as to whether freelancers are caught by IR35 in 4 areas including IR35 Financial Risk. Here is the new guidance from HMRC on IR35 Financial Risk after their meeting on November 10th.
â€œWe have made it clear that we would take account of a substantial investment in skills, where a skilled worker incurs significant expenditure on training to gain a skill which will be used in subsequent engagements. This kind of investment can be treated as a pointer to self-employment in the same way as investment in tools or equipmentâ€.
Thatâ€™s good news for freelancers. If they spend money on training for a new skills, that they then subsequently use on a contract, that would be a pointer to them being outside IR35.
One would presume that this applied to all contracts where they used that skill and not just the contract that they picked up the skill for. There are lots of skills that are used on a contract so contractors have a good choice. Presumably one would be best to pick a skill that is used in a lot of contracts like SQL or even HTML.
Of course, as with most rules or regulations on IR35 guidance brought in by the Government and HMRC there is always a word that gives them wiggle room and leeway and leaves it up to HMRC to interpret. In the Controlling Persons rules that word is â€˜significantâ€™. They say that if a person has â€˜significantâ€™ control over people and budgets they are caught by IR35.
This time the word is â€˜substantial, but they through in â€˜significantâ€™ as well for good measure. One has to wonder if they do this deliberately so that they can be the sole arbiters of what is significant or substantial as regards IR35 Financial Risk for contractors.
At least in the IR35 Business Entity Tests they define the â€˜significantâ€™ amount that contractors need to spend on advertising to get 2 points towards being Low Risk of being caught by IR35, as Â£1,200 a year. Would this be a substantial or significant sum to spend on skills training for a contractor? Theyâ€™ll have to just guess as there is no clarification here.
Which Contractor Accountant?
As it is not defined, most contractors wonâ€™t spend money on it just to get themselves outside IR35 â€“ but those who have spent money on it anyway will be able to use it as part of their solution if and when HMRC investigate or ask them to prove they are outside IR35.
However, overall it is good news that HMRC would take skills retraining by contractors that is subsequently used by the contractors as a pointer to being outside IR35.
See Which Contractor Accountant for a review of some good contractor accountants.