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Survey claims current IR35 tests are flawed

A survey undertaken by has found that contractors in the UK are undergoing unnecessary IR35 reviews due to HMRC’s potentially flawed business entity tests.

According to Dave Chaplin, the website’s CEO, the results suggest that the business entity tests from HMRC are leading the department to undertake status enquires that have little or no chance of success.

Chaplin called the status enquiries a “shocking” waste of HMRC resources, and criticised tests for laying undue stress on the shoulders of contractors.

He continued to say that just under a fifth of the contractors surveyed – of whom there were more than 10,000 – had taken HMRC’s business entity tests. Of those who made use of the department’s risk assessment tool, just over a third found they were, according to HMRC criteria, high risk. A further 41% were considered medium risk, while just 24% were low risk.

However, when these results were cross-referenced with the results of ContractorCalculator’s IR35 Status Test, it was observed that around a third of those considered high risk by HMRC were in fact outside IR35.

Those unsure about which bracket they fall into can seek specialist contractor accounting services, which will confirm the criteria for each.

Chaplin explained that while the website’s test used algorithms based on case law, IR35 legislation and the results of many previous IR35 reviews, HMRC’s tests are not underpinned by case law or legislation.

He concluded by saying that ContractorCalculator’s findings should, when paired with further data he hopes will be secured from HMRC in the near future, prove HMRC’s current risk-based approach to be flawed.

Posted by Peter
March 5, 2013

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