Following criticism that business entity tests (BETs) for IR35 reporters are not fit for purpose, HMRC is to withdraw the tests from April 2015 only two years after they were introduced to make it easier for individuals to work out their risk of being investigated under IR35 legislation
HMRC has accepted a recommendation to withdraw the BETs from 6 April 2015. This follows a review which found that BETs were used very little and were not fit for purpose. Accompanying example scenarios will also be withdrawn.
The BETs system was only introduced two years ago as a way of helping individuals work out their risk of being investigated under the IR35 legislation but they have been ineffective. They were set up as voluntary tests to help taxpayers self-assess the overall risk that the IR35 provisions will apply to their business. They are made up of a series of weighted questions where the totalled score determines whether the business risk in relation to IR35 is low, medium or high.
The move was welcomed by IPSE, the association of independent professionals and the self employed.
IPSE's director of policy and external relations, Simon McVicker, said: ‘The BETs had the potential to bring real clarity to independent professionals working through their own limited companies.
‘Instead the tests were badly designed, poorly scored and misused from the outset, much to IPSE’s dismay.
‘I am pleased to hear that they will finally be scrapped. They have created more uncertainty, not less, with clients especially in the public sector, wrongly using them to assess the tax status of contractors.’
From 6 April 2015, the BETs will not be taken into account when HMRC opens an IR35 enquiry. Prior to this date, businesses can continue to take the BETs if they wish or are asked to do so as part of a tendering process.
If an enquiry is opened before 6 April 2015, and a business can show to HMRC's satisfaction that it has taken the BETs with an outcome outside IR35 or in the 'low risk' band, HMRC will close the enquiry.
HMRC will not open another IR35 enquiry for three years if the information provided is accurate and circumstances do not change in that time.
Where an IR35 enquiry is closed by HMRC as a result of the BET results, the business should keep those results and any evidence relied on to take the tests for at least the three-year period involved.
More details are available at http://www.hmrc.gov.uk/news/ir35bet.htm