HM Revenue and Customs (HMRC) published new IR35 guidance “Intermediaries Legislation (IR35) Business Entity Test Example Scenarios” on 9 May 2012. The guidance only applies to tax payers who provide their personal services to clients through a limited company or a partnership, i.e. by means of intermediaries.
In these circumstances, they are required to comply with IR35 and self-asses themselves which risk band they are in, such as a low, medium or high risk of IR35 review by way of answering 12 questions set out in the guidance. Each question is weighted and scored.
While intermediaries’ legislation still examines each contract individually, the new guidance changes HMRC’s approach from assessing the risk of each contract to assessing the risk of a “business entity”. However, the business entity test does not replace the legal test of whether or not a specific contract is outside of IR35 legislation.
Nevertheless, if tax payers prove that they are outside the scope of IR35 legislation or they are in the low risk band, they are entitled to request HMRC to close their IR35 review. In addition, HMRC undertakes not to check the same taxpayer for the next three years provided that the information given to HMRC was accurate and the tax payer does not change his working arrangements.
Tulin Kiranoglu, Solicitor, Tax Advisor