The Business Entity Tests (BETs) were introduced by HMRC to help determine whether a person providing services through a limited company would be caught by the IR35 legislation, which effectively seeks to treat the person as being an employee of the end user for tax purposes.
The BETs have been criticised by the tax profession as the tests, only very loosely based on case law, only added confusion to this area.
Following a review by the tax profession, we are pleased to confirm that HMRC will stop using the BETs from 6 April 2015, only two years after they were first introduced. The IR35 Forum, HMRC’s external group of advisers on intermediaries legislation, found the voluntary checks were not widely used and were not fulfilling their purpose of assessing whether or not IR35 applied to taxpayer firms.
BETs will not be taken into account when HMRC open an IR35 enquiry on or after 6 April next year, although they will close an enquiry if it was opened before the withdrawal date and a business can show it took the BETs with an outcome outside IR35 or in the low risk band.
HMRC will then not open another IR35 enquiry for three years if information provided is accurate and circumstances do not change.
The BETs were used by the Ministry of Defence earlier this year and caused a number of contractors unnecessary concern, particularly where a full review had already been undertaken on particular contracts and so we are pleased to see these tests removed.