New IR35 Business Entity Test
Take the new IR35 Business Entity Test here – IR35 Business Entity Tests
It would seem that most contractors would only normally pick up points in 2 and 10.
One would suppose they could knock up a business plan for 7.
I suppose if they had Indemnity Insurance they could argue that in 8 they would have to pick up the cost through their insurance premiums.
IR35 Test Result
So, they would have
No 2 – 2 points
No 7 – 1
No 8 – 4
No 10 – 2
That would give them 9 points which would put virtually all contractors and freelancers in the High Risk category of being inside IR35.
Disguised Employees
When the government first brought in IR35 in 1999 it was to stop the practice of a person being an employee at a company on the Friday and starting again as a contractor on the Monday at the same company doing the same job but paying less tax and National Insurance contributions.
The Government described them as ‘˜disguised employees‘ which they were.
However, when the IR35 law came in, many more contractors than that were caught by IR35.
All Caught by IR35
Now, it looks as if, with this IR35 Business Entity Test, that HMRC considers virtually all contractors and freelancers as being caught by IR35.
Of course the big bonus for HMRC is that it is reckoned that Umbrella Company contractors pay an average of £10,000 a year extra on tax and National Insurance Contributions than a Limited Company Contractor does.
Umbrella Company Contractors
While there were no Umbrella Company contractors in 1999 when IR35 was set up there are now 200,000 of them netting the Government an extra £2bn a year in tax and NICs.
There are another million or so contractors and freelancers out there – most of whom would fail this test in normal circumstances.
It looks as if the government believes that virtually all freelancers are really ‘disguised employees‘ – at least for tax purposes.
The Government and HMRC must be rubbing their hands at the extra cash likely to come in as the new IR35 Business Entity Test scares more and more contractors into Umbrella Companies.
Umbrella companies must be delighted too.
