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IR35 Business Entity Tests Withdrawn

HMRC have announced that after only 3 years, they are scrapping the IR35 business entity tests.

HM Revenue & Customs (HMRC) will withdraw the business entity tests (BETs) and example scenarios from 6 April 2015, and there are no plans to replace them.

The IR35 Forum reviewed the (BETs) and found that they were not helping customers as they’re:

  • used very little
  • not fulfilling their intended purpose

The much published business entity test was launched in 2012 as a tool in which contractors could calculate their own liability in regards to IR35. The initial aim was to aid people in establishing the likelihood that they would be targeted in an IR35 enquiry, but in practise, it caused more confusion than clarity.

Whilst this idea was very good idea from the outset, the reality was that they were rejected by almost all who used them, and the IR35 forum deemed the test ‘unfit for purpose’.

The Business Entity Tests were designed to make life easier for contractors, but ended up having the exact opposite effect. They caused widespread confusion, particularly for those working in the public sector who were forced to use them. Therefore their withdrawal cannot come soon enough. What remains to be seen is whether HMRC will try and replace them; if they do let’s hope it will be with something genuinely useful this time.

The test comprised of 12 questions with scores assigned to each answer, which are attributed to a final score that puts you at a ‘low’, ‘medium’ or ‘high’ risk of being targeted in an IR35 investigation. Unfortunately however, the test’s questions were slanted in a way that put most people who took the test in the ‘high risk’ category regardless of whether their contract and working practises were compliant.

Compliance is essential for LTD company contractors, and having a genuinely helpful tool where people can gauge their IR35 risk would be a much welcomed asset to any limited company. With the scrapping of the business entity tests from 6th April however, it looks as though contractors will have to wait for this to become a reality.