HMRC has announced that it will be removing the Business Entity tests from the 6th April 2015.
HMRC has made the decision to scrap the tests after only 2 years following recommendations from the IR35 forum. The tests were part of a larger initiative to allow contractors to gauge their own IR35 risk. The IR35 forum reviewed these tests and found that the BETs were being misused, and recommend abolishing them. They told the HMRC that these tests were not worthwhile as an insufficient number of contractors were using them and they were not achieving their anticipated result.
The IR35 forum is made up of representatives from HMRC, taxpayers and professional advisors. The director of our IR35 review association, Bauer and Cottrell is a member of the IR35 Forum, which is why we are very confident with the quality of their review and have included it as part of our Essential Plus and Premier packages.
The HMRC is more likely to check whether IR35 applies to a taxpayer if there is a high risk indicated by a BET. However, since the IR35 test is a test for employment status and NOT a test for self employed, we would strongly recommend our clients to go for a professional review anyway.
HMRC states that in order to decide whether IR35 applies, they need to consider each engagement separately. There have been previous concerns that BETs weren’t being used properly in the public sector. See our public sector guidefor more information.
What you need to know:
- HMRC will continue to close an enquiry if a business has taken a BET and shown an outcome outside IR35 or in the ‘low risk’ band prior to 6th April 2015.
- HMRC will not open a new IR35 enquiry within 3 years following the successful outcome of a previous enquiry.
- The results from closed IR35 enquiries should be kept for at least 3 years (including the BET information).
- Business Entity tests will not be taken into account for enquiries after 6th April 2015.
- There are no plans to replace the Business Entity tests but they can still be used up until 6th April 2015.
Our IR35 review (conducted by Bauer and Cottrell) included in our Essential Plus and Premier packages will ‘protect’ our clients for HMRC investigation up to the tribunal stage provided our client follows our associate’s recommendation of their employment status and pay the correct tax.
IPSE’s director of policy Simon McVicker said: “There are no shortcuts when it comes to engaging highly professional contractors: clients must provide good, solid contracts with independent professionals and establish clearly what the business relationship will be at the outset.” We totally agree with Simon on this point and as an accredited member of IPSE we uphold and promote their values. If you are interested in becoming a member of IPSE we offer our clients a 15% discount.
For more information about IR35 and setting up a limited company, give us a call on 020 7078 0211.