What is a Business Entity Test?

What is IR35?

It’s vital that all self-employed workers are aware of IR35 and how it works as it can affect how much you need to pay in tax, as well as whether or not you’ll be entitled to certain contractor benefits.

Benefits such as being able to claim back on business expenses. These include:

• Travel costs – such as fuel, parking, hire charges, train/bus/taxi/airfares and accommodation while away for business reasons.
• Office costs – such as stationery, printer ink/cartridges, postage and phone/mobile/internet bills.
• Clothing expenses – if you require specific protective wear, a uniform or a costume.
• Financial costs – such as hiring an accountant.
• Training courses – but they must be related to your current line of work.
• If you work from home, you may be able to claim a proportion of costs for your heating, electricity, Council tax, mortgage interest/rent and internet/telephone use.

For more information on how contractor expenses work, take a look at our Limited Company Expenses Guide.

IR35 is a legislation put in place to prevent workers from benefitting from the perks of self-employment when they are in fact employed.

You fall either ‘inside’ or ‘outside’ IR35 based on your level of risk, liability and responsibility as a worker.

If your contract shows similar working practises to other contractors then you will be deemed as being ‘outside’. If not, your contract will be ‘inside’ and treated similarly to that of a permanent worker.

An IR35 status can change with each contract, so it is possible to fall into both categories during the course of a year.

Our What does inside IR35 mean? page will help you get an idea of how falling inside IR35 affects contractors.

What is a Check Employment Status for Tax tool?

As mentioned previously, Business Entity Tests no longer exist, instead, they have been replaced with CEST – a Check Employment Status for Tax tool.

It’s available for the hirer, agency or the worker and gives you HMRC’s view of a worker’s employment status, based on certain information, such as:

• Details of the contract
• The worker’s responsibilities
• Who decides what work needs to be done
• Who decides when, where and how the work is done

However, it has long faced criticism for being unreliable with many people reporting that it doesn’t always give accurate results.

An example of this is that the tool doesn’t correctly recognise mutuality of obligations between the contractor and hirer – an area that has caused HMRC to lose some important IR35 cases over the years.

You may find our IR35 Rules page useful for more detailed information on what factors are considered when looking at a contract.

If you have any further questions about IR35, our team of experts are available to answer any queries, so give us a call on 01442 795 100, email sophie.lewis@dolanaccountancy.com or contact us via live chat.