IR35 Business Entity Tests to Be Scrapped

It was announced yesterday that HMRC are to withdraw the business entity tests from 6th April 2015. The tests were brought in to assist those taxpayers, notably contractors and freelancers with their own limited company, who were unsure if they were caught under the IR35 legislation.

A much debated piece of legislation, the IR35 forum, which was formed in 2012, conducted a review of the business entity tests concluding ‘that the tests were used “very little” and were not fulfilling their intended purpose.’

The IPSE (formerly PCG) had argued “from their introduction” that they were “flawed in both scoring and application” and were pleased with the announcement from HMRC today.

IPSE’s director of policy 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 therefore 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.”

HMRC have said they will provide new guidance on gov.uk and the IR35 forum made clear when they made the recommendation that there would need to be a clear handling and communication process following on from the withdrawal of Business Entity Tests.

As specialist contractor accountants, ICS have been providing IR35 advice to our clients for many years. As IPSE Accredited Accountants, we also undertook additional training with regard to IR35 and are kept regularly updated. If you require any advice with regard to IR35 and your working status please contact us on 0800 195 3750 or email the team on webenquiry@icsuk.com.