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IR35 Business Test Imminent

The IR35 Forum finally released the minutes of its last two meetings of 21st February and 8th March and we now know that a business entity test will be published, on a trial basis, on HMRC's website in April.

During previous meetings of the IR35 Forum it had been agreed that two specific aspects would be developed to support the improvements necessary to administer IR35, namely:

  1. Rather than HMRC carrying out an IR35 risk assessment on an individual contract basis, the business entity would be examined to determine whether HMRC considered a business to be high, medium or low risk in terms of selecting it for enquiry.
  2. A set of scenarios would be developed and discussed by the Forum to establish common ground and differences between HMRC and industry representatives.

Business Test

To ascertain the level of IR35 risk that a business is exposed to the business test is comprised of a number of weighted questions. Depending on the answer to a question a positive or negative score will be allocated and the total of these scores will signpost the personal service company's risk exposure.

Although a general agreement was reached over the wording of the tests, the same could not be said for the exact scoring of some of the tests. There were concerns that even having passed many of the tests a business could still be categorised as a medium risk because of the scoring system.

Some Forum members held the view that the test should be consulted upon publically or that the publishing of them should be delayed by a year. As the business entity test does not represent a legislative change to IR35 but rather HMRC's guidance regarding compliance risk, the test will be published on HMRC's website next month on a trial basis and will be subject to review by the Forum.


Seventeen scenarios were discussed with a view to establishing whether under a given set of circumstances HMRC and external representatives would arrive at the same conclusion as to whether IR35 should be applied. Of those seventeen, fourteen produced agreement. The remaining three scenarios fell within the grey area but it was felt that a consensus could be reached on some of them with further information and clarification.

Probably unsurprisingly, there was discussion on HMRC's interpretation of mutuality of obligation and also supervision.

Six of the scenarios will eventually be published as it was felt that to publish the entire seventeen would cause confusion rather than clarity. These scenarios will not be sector specific and will consist of:

  • Two that are caught by IR35;
  • Two that are outside of IR35;
  • One grey area; and
  • One situation where a contract begins life outside of IR35 but later becomes caught due to a change in practice of the company.

Once again, the intention is to publish the scenarios on HMRC's website in April.

Upper & lower level contracts

The problem of a contractor being left ignorant of the content of the upper level contract, i.e. agency and end client, was discussed. External representatives believe that there should be an education process and a code of practice for end clients, employers, employment businesses and accountants. With this in mind they are to put something in place.

Whilst it would have been preferable for the tests and scenarios to have been announced in conjunction with last week’s Budget, credit should be given for progress made to date and judgement reserved until the details have been revealed.

The next meeting of the IR35 Forum is scheduled for 10th May.

By Qdos Contractor


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3 thoughts on “IR35 Business Test Imminent”

  1. Graham

    Why does one scenario look at a contract starting outside IR35 but then coming inside when they have stated that they are not going to look at contracts but the business entity?

    And a question I have never heard an answer to, why does an upper level contract take any precedent over a lower level contract? I don’t see how there can be any legal connection if an agency promises a client one thing but a service provider something different. Are we effectively stating that any contract a service provider has is meaningless if the upper contract says something different?

  2. Mark

    It is wise to ensure that the contract between the agency and the contractor reflects the agreement between the agency and the final client. In my own case I have a letter from the agency confirming that this is the case with regard to my contract with them.

  3. C

    The article is fine, but… at risk of being accused of pedantry… the misuse of the word “comprised” is annoying.

    The artile says “To ascertain the level of IR35 risk that a business is exposed to the business test is comprised of a number of weighted questions. “.

    It should simply say “… the business test comprises a set of questions”.

    That is because “comprise” is like “contain”, so to say “is comprised of” is the same as saying “is contained of”. Which everyone would immediately see as being a bit weird, but yet when the word “comprise” is misused in the same way, it seems to go unnoticed.

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