Turnover test for IR35 excludes donation and other voluntary income

From April 2020, operating IR35 becomes the responsibility of the organisation, not the worker. Full details including links to HMRC guidance can be found here.

IR35 rules for private sector bodies will only apply to larger organisations, those with:

  • Turnover > £10.2m
  • Balance sheet total > £5.1m
  • Number of employees: 50 or more

For unincorporated organisations, the change in legislation will apply where only one of the above tests is present, but over two accounting periods.

In response to consultations on this issue, CTG has argued that the definition of turnover should exclude donation and grant income. HMRC has now confirmed in writing  (e-mail from IPD Employment Status and Intermediaries Policy team on 4 November 2019 –  available on request) that this is the case:

“I welcomed the opportunity to meet with the Charity Tax Forum again recently, and am happy to clarify the point I made on the provisions of the draft legislation for the reform to the off-payroll working rules, published 11 July 2019.

“The definition of “turnover”, one of the three tests to determine the size of an organisation, is intended to have the same meaning as is provided for in the Companies Act, 2006. This is for “turnover” to reflect trading income from which an organisation would report as a profit or a loss, or income and expenditure.

“HMRC has previously published guidance for Senior Accounting Officers on what constitutes “turnover” in relation to the Companies Act, 2006 which you can find here. This guidance advises that ‘corporates which are charities almost certainly receive donations and other voluntary income which does not derive from the provision of goods and services. This would not therefore constitute turnover.’

“The intention under the provisions of section 60E (5) of the draft legislation is to use the same definition of “turnover” for both corporate and non-corporate entities.”