Contractors working through limited companies might be tempted to switch to umbrella companies once the full extent of the Revenue’s IR35 assessment criteria becomes known next week.
We still don’t know exactly what the business entity test is going to entail as its launch has been deferred, supposedly until May 7th.
The weighting allocated to each question has been devised according to HMRC’s criteria. Contractors scoring between zero and 10 will be classified as high risk of falling under IR35 legislation. Those with a score of between 11 and 20 will be medium risk and anyone with a score of 21 or more will be low risk.
Contractors need to be aware that they can be awarded minus points for some answers. For example, if you say you were employed by a company through PAYE in the last financial year and are now working as a contractor for the same firm, you will be awarded minus 15 points. On the other hand, if you are lucky enough to have employees who contribute at least 25% to your turnover, you get a massive 35 points and shoot straight into the low risk bracket.
The Revenue seems determined to implement its own system of weightings even though business groups have advised them against it. It remains to be seen how many contractors will find themselves at medium or high risk of falling under IR35, but I’m sure there will be a lot of complaints when the test finally does go live.
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