One man companies beware!

One man companies should be well aware of the IR35 rule. The taxman has just published its 47 page ‘Intermediaries legislation guidance note’.

The note includes 12 business entity tests which will be one element in assessing the likely risk of there being potential ‘tax leakage’ and whether HMRC need to take further action. The tests are:
• Business premises
• Efficiency
• Assistance
• Advertising
• Previous PAYE
• Business plan
• Repair at own expense
• Client risk
• Billing
• Right of substitution
• Actual substitution

Scores are given to each of the tests which are then used to assess the contractors’ risk profile and whether they are high or low risk. HMRC can then target businesses accordingly. The HMRC guide explains that the tests are not set in stone but are an extension of the risk-based approach which applies to all of its investigations. HMRC will have specialist teams in Salford, Edinburgh and Croydon to spearhead the initiatives in this area.

The ‘test scoring’ is a diagnostic tool and many disputes will only be resolved by reference to the plethora of tax cases on this issue which go back decades. HMRC have confirmed that the IR35 overhaul will mean an increase in investigations. So anyone who thinks that they may be at risk would be well advised to have a look at the notes for themselves. Forewarned is forearmed…..

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