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Employed or Self Employed?
Whether a contractor working through a limited company is genuinely in business on his/her own account or employed for tax purposes is now at least partly determined by the business entity tests used by the HMRC. Note that that an employment tribunal may not interpret this in quite the same way, but Robert Bradley of Bradley and Associates has set out the tax implications of IR35. He describes the tests and scoring as follows:

• Does the contractor have business premises? – 10 points for yes
• Does he have his own Professional Indemnity insurance? – 2 points if yes
• Has the contractor benefited from his own efficiency? – 10 points if yes
• Does the contractor employ anyone? – 35 points if yes
• Has the contractor spent more than £1,200 on advertising during the year? - 2 points if yes
• Has the contractor previously worked for the client under PAYE? – minus 15 points if yes
• Does the contractor have a business account and a business plan? – 1 point for both
• Does the contractor repair at his own expense – 4 points if yes
• Has the contractor incurred a bad debt equating to more than 10% of his turnover in the past two years? – 10 points if yes
• Does the contractor give credit? – 2 points if yes
• Does the contractor have a right of substitution? – 2 points if yes
• Has the contractor actually substituted in the previous two years? 20 points if yes

The scores used to assess contractors’ risk profiles are as follows:
Less than 10 points High risk
10-20 points Medium risk
More than 20 points Low risk

The HMRC guide explains that the tests are not set in stone, and are an extension of the risk-based approach which extends to all of its investigations. Nevertheless it is important for contractors to consider them carefully.

See http://bit.ly/19OXAYK for more information on the implications.
Posted on 19 Nov 2016


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