Contractors’ Questions: Can I skew HMRC’s IR35 Business Premises test?

Contractor’s Question: I pay £‘xx’ to my accountant for using their address as a registered address for my limited company. Can I classify this as using an office space which is not my home or client premises, in wake of the new IR35 business entity test for business premises? One contractor I know claims that if you set out to deliberately ‘work’ the test, i.e. by renting office space which you don't use, that it could be classified as ‘active avoidance,’ and reflect very badly in the event HMRC investigates under the new IR35 processes. Please advise.

Expert’s Answer: The test you identify, which ascribes 10 points for a positive answer, simply asks whether a business owns or rents business premises and requires, amongst other things, a lease or contract for business premises as evidence. Listed in the official guidance as the first of 12 tests (on page 17), it makes no mention of the business operating out of those premises, so in theory a business could merely pay rent to occupy premises.

There is another tax issue to consider here, i.e. the corporation tax relief for such expenditure. If the expense is not ‘wholly and exclusively’ for the purposes of the trade, then there can be no corporation tax deduction, or there may be partial relief. If HM Revenue & Customs sees no deduction being claimed when taking up an IR35 review, they will probably ask why and could seek to discredit the evidence but, at the moment, that is not what the guidance says.

The expert was Seb Maley, operations manager at Qdos Consulting, the employment law and status experts.