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HMRC abolishes the IR35 Business Entity Tests (BETs) effective from 6 April 2015

Contractors will no longer be required to use the IR35 Business Entity Tests (BETs) as a precursor to an HMRC IR35 investigation, and the taxman confirms that there are no plans to replace them.

Following calls recommending their abolition by an IR35 Forum focus group, HMRC has: “Accepted this recommendation and will withdraw the BETs from 6 April 2015. The BETs won't be taken into account when HMRC opens an IR35 enquiry on or after 6 April 2015.”

The taxman goes on to say: “HMRC will also withdraw the example scenarios published with the BETs from 6 April 2015. There are no plans to replace the BETs or example scenarios.”

“The BETs were never intended to become a substitute IR35 or employment status test, but that’s what they have become in the eyes of many contractor clients, particularly in the public sector. As a result, they are not fit for purpose,” highlights ContractorCalculator CEO Dave Chaplin.

“The BETs were flawed from the outset because they had no basis in the employment status case law that underpins IR35 legislation. When we compared the results of the BETs with the result of ContractorCalculator’s Free Online IR35 Status Test, which is based on actual cases and case law, we discovered that the BETs judged many contractors who were clearly outside of IR35 as high risk.”

Contractors who do score in the low risk band can continue to use the tests right up until 5 April 2015 and benefit from a rapid close of any HMRC IR35 review and the three year exemption from further investigations.

The taxman also confirmed that the outcomes of tests taken since May 2012 when they were first introduced will stand: “When HMRC has previously closed an enquiry based on a result of the BETs then they won't open another IR35 enquiry within the 3 year period previously notified to the business.”

Published: 27 October 2014

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