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The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.
In 2012 HMRC put forward the Business Tests but they haven’t been as successful as first thought.
Here are the 12 tests, scores shown in()
- Business premises (10)
- PII (2)
- Efficiency (10)
- Assistance (35)
- Advertising (2)
- Previous PAYE (minus 15)
- Business plan (1)
- Repair at own expense (4)
- Client risk (10)
- Billing (2)
- Right of substitution (2)
- Actual substitution (20)
A score less than 10 is high risk and a score more than 20 is low risk. Fail the test and it could cost you a great deal in tax.
In general the key test tend to be:
- Financial Risk
HMRC launched the ESI (Employment Status Indicator) a while ago.
The recently published Minutes of the IR35 Forum’s last meeting held on 24th July reveal that HMRC are keen for contractors to be able to assess their employment status by way of the Employment Status Indicator (ESI) tool.
Will this resolve the IR35 Status problems?