New Online IR35 Test for IT Contractors
So, there’s going to be a new online IR35 test for contractors. the Government will force employers, or fee payers, to force contractor to take the test to work out their IR35 status. We now have a better idea what the Chancellor intends for UK Contractors when he stands up to give his Autumn Statement next Wednesday.
The main proposal is for a new IR35 Test for IT Contractors, and other freelancers.
This time the onus is on contractors proving that they are outside IR35 rather than HMRC having to prove that they are outside IR35.
Off Payroll Employees
The Conservative Chancellor, George Osborne, had details leaked to a couple of newspapers last week saying said that he was going to make contractors go on the payroll of client companies if they had been there more than a month.
While this could still be the case, it is not automatic.
Contractors Forced to Do an Online IR35 Test
Once they have been at a client’s site for a month, personal service company contractors will have to do an online IR35 test to prove that they are outside IR35.
The details of those who fail the IR35 test will be kept by HMRC for future reference.
The new online IR35 test will test to see how much Supervison, Direction and Control that the contractor is under at a company.
It is not understood yet who will make sure that contractors do the test.
Sitting the New IR35 Test
It may well be the client company who insist that the contractor sits the new online IR35 test.
Presumably, if the contractor fails the test and is inside IR35 the client will either have to take him, or her, on the payroll or dump them.
The leak, at the moment, only refers to personal service companies so it is not known what effect it will have on umbrella company contractors.
The original leak in the Guardian and and Daily Mail seemed to suggest hat the changes would affect all of those who are paid and taxed through an intermediary, i.e. a personal servcie company or umbrella company.
So we will have to wait till Chancellor Osborne’s Autumn Statement on Wednesday to find out.
Proving You are Outside IR35
The onus will be more, in future, on those who hire contractors, i.e. client companies, making sure that the contractors they have hired aren’t caught by IR35.
It will also be on contractors to prove that they are outside IR35 rather than for HMRC to prove that they are inside IR35.
Another problem could be the new online IR35 test itself.
HMRC Cooking the IR35 Figures
HMRC have had previous on this.
Along with the Professional Contractors Group (now IPSE), HMRC devised a Business Entity Test that would show whether contractors were inside IR35 or outside IR35. Take it yourself and see how you would have done.
Unfortunately, HMRC decided to break ranks when it came to giving weighting factors and scores to the different questions. They also unilaterally decided the number of points that you needed to be inside and outside IR35.
They made the threshold ridiculously high so that virtually every contractor would have been caught by IR35.
They had no basis in law for doing this.
However, it was just advisory and a guideline for IT contractors – although some Government Departments used it to test contractors.
New IR35 Test Will be Definitive
This new onlne IR35 test will be more than advisory, though.
If IT Contractors fail it they will be treated by client companies as being caught by IR35 with all the consequences there.
It would be interesting to see what basis in law they have for this.
Contractors Could Sue HMRC
If a contractor was kicked out of a contract because this test said that he, or she, was inside IR35,what would happen if the contractor tested this in court and won his, or her, case?
HMRC would be taking a hell of a risk in putting contractors at financial risk for a test that may, or may not, meet legal conditions in judging whether a contractor is inside IR35 or outside IR35.
Creating an online IR35 test doesn’t make it legally correct.
Only the courts can test this.
Conservatives Worse than New Labour
For UK IT Contractors, and other freelancers, the pain goes on.
There is no clear, measurable line that says whether a contractor is inside or outside of IR35.
This new online IR35 test is just another huge distraction for contractors who just want to concentrate on their contracting careers without having to jump through yet more hoops.
IT Contractors thought that New Labour, who brought in IR35, were bad.
It looks as if the Conservatives are going to be much worse.
With the LibDems out of the way, the gloves are off for the Conservatives as far as contractors are concerned.
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