Determine Your IR35 Status

To determine whether you sit inside or outside of IR35, HMRC now look to the business entity tests to assess your situation. There are 12 of them in total, each test asks at least one question and will give you a score to assess your risk.

Business Entity Tests

There are twelve of them.

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Business Premises Test
Does your business own or rent business premises which are separate both from your home and from the end client’s premises? For the purposes of this test, it makes no difference which of you owns or rents the business premises – you yourself or your intermediary.
Evidence

  • Address of business premises
  • Lease or contract for business premises
  • Utility bills for business premises
  • Home address
  • Client’s address

Score 10 points if your answer is Yes.
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The PII test

Do you need professional indemnity insurance?
Evidence

  • PII policy document
  • PII premium note
  • Explanation why you need PII

Score 2 points if your answer is Yes.
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The Efficiency test

Has your business had the opportunity in the last 24 months to increase your business income by working more efficiently? One way of doing this is finishing a fixed-price contract early. Say you agreed with the end client that the work would take three months and the fee would be £10,000. And say you finished in two months and received the full £10,000 at that point. You would have freed up a month to take on new business. So the answer to this question would be Yes.
Evidence
Clauses in the contract. Here are some examples.

  • You receive a fixed payment on completion.
  • You crystallise the profit when you make the supply of services to the end client.
  • You can provide extra workers to complete the job more quickly.

Copies of:

  • Costings for proposals
  • Tenders submitted
  • Letters from clients accepting offers.

These would show the proposal options and related costs that you submitted for clients to approve and accept.
Score 10 points if your answer is Yes.
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The Assistance test

Does your business engage any workers who bring in at least 25% of your yearly turnover? If your intermediary is a company, these workers need to be people other than directors or shareholders of the company. If your intermediary is a partnership, these workers need to be people other than partners in the partnership.
Evidence

  • Accounting records
  • Details of tasks carried out
  • Names and payment details of workers who carried them out

Score 35 points if your answer is Yes.
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The Advertising test

Has your business spent over £1,200 on advertising in the last 12 months? Entertainment does not count as advertising.
Evidence

  • Copy of advertisement(s) placed
  • Copy of invoice(s)

Score 2 points if your answer is Yes.
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Has the current end client engaged you:

  • on PAYE employment terms
  • within the 12 months which ended on the last 31 March
  • with no major changes to your working arrangements?

If you are doing the same work, the answer to this question is Yes. Working at a different location does not count as a major change. If you were working for a company that is connected to the current end client, that counts as working for the current end client. For example, if the two companies are part of the same group.
Evidence: We will be able to check your employment history on our systems.
Score Minus 15 points if your answer is Yes.
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The Business Plan test

This test has two parts. Does your business have a business plan with a cash flow forecast which you update regularly? Does your business have a business bank account, identified as such by the bank, which is separate from your personal account?
Evidence

  • Copy of business plan
  • Copies of updates
  • Statements of business bank account

Score 1 point if your answer to both questions is Yes.
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The Repair At Own Expense test

Would your business have to bear the cost of having to put right any mistakes?
Evidence

  • Clause in contract
  • Details of what could go wrong
  • Details of how you would put it right
  • Details of the cost to your business of putting mistakes right

Score 4 points if your answer is Yes.
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The Client Risk test

Has your business been unable to recover payment:

  • for work done in the last 24 months
  • more than 10% of yearly turnover?

Evidence

  • Accounting records showing write-offs
  • Copies of letters and emails between intermediary and end client
  • Copies of letters and emails about legal action for recovery

Score 10 points if your answer is Yes
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The Billing test

Do you invoice for work carried out before being paid and negotiate payment terms?
Evidence

  • Copies of invoices
  • Copies of letters and emails about billing

Score 2 points if your answer is Yes.
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The Right of Substitution test

Does your business have the right to send a substitute?
Evidence

  • Clause in contract
  • Details of who would supply the substitute
  • Details of who would be responsible for the substitute’s performance
  • Details of who would pay the substitute
  • Details of what level of veto the end client has

Score 2 points if your answer is Yes.
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The Actual Substitution test

Have you hired anyone in the last 24 months to do the work you have taken on? You could do this by sending someone to do the work in your place. You could also do this by sub-contracting. But your business has to remain responsible for the work and for paying the person who does the work you have taken on. You can still pass this test if you had to tell your end client the name of the person who would be doing the work you took on.
Evidence

  • Details of end client
  • Details of who was hired
  • Details of why the substitute was hired
  • Details of who was responsible for finding the substitute
  • Details of who was responsible for paying the substitute
  • Payment terms
  • Audit trail of payment from end client to intermediary and from intermediary to substitute

Score 20 points if your answer is Yes.
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In broad summary, to work out whether IR35 applies to an engagement one looks at the working arrangement and decides whether, if the worker had contracted directly with the end client, the worker would have been employed or self-employed. So how did you score?

Test scores and risk bands.
Less than 10 - High risk
10 to 20 - Medium risk
More than 20 - Low risk

So what does this mean, click on the risk category that you come under to see what the implications are for you.