HMRC announce withdrawal of Business Entity Tests
Following the recent call by the IR35 Forum to abolish the Business Entity Tests (BETs), HMRC has relented and agreed to remove these with effect from 6th April 2015.
It has been over two years now since HMRC introduced its new approach to administering IR35, which has been the subject of review by the IR35 Forum. The BETs were an integral part of the new order, which were designed, in part, to help contractors self-assess their IR35 risk. However, the Forum’s review concluded that they were unhelpful because:
- very few people used them; and
- they were not fulfilling their intended purpose.
As a result, HMRC has accepted the Forum’s recommendation and will withdraw the BETs from 6th April 2015. Until then, freelancers can continue to use the BETs if they wish or are asked to do so as part of the assurance process when dealing with end clients in the public sector.
For IR35 enquiries that are opened on or after the 6th April 2015, the BETs won’t be taken into account. However, if HMRC opens an enquiry before then, and a business can show to HMRC’s satisfaction that they have taken the BETs with an outcome outside IR35 or in the ‘low risk’ band, then HMRC will close the enquiry. They also won’t open another IR35 enquiry for 3 years if the information provided is accurate and circumstances (in particular working arrangements) don’t change in that time.
Where HMRC has previously closed an enquiry based on a result of the BETs then they say that they will remain true to their word and won’t open another IR35 enquiry within the 3 year period previously notified to the business.
Where HMRC closes an IR35 enquiry based on the BET results, freelancers should keep those results and any evidence relied on to take the tests for at least the 3 year period involved.
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.
HMRC will shortly publish updated guidance on the GOV.UK website.
Hopefully this is a move in the right direction.
At last someone has seen the light that something was not working.
Can now the same logic be used to remove IR35?
IR35 is:
. not working
. does not collect much tax
. costs much government money to maintain
. contractor stress impacts on the NHS
. contractors avoid government contracts
. government depts miss out on IT skills
. IT skills on demand can fix issues in:
. DWP
. Immigration
. Police
. etc
. contractors don’t drain Benefits budget
Contractors avoid government contracts.
Exactly since they announced the BETs I decided unless they up my day rate by 30% I’m not taking a risk on getting hit with IR35 as the BETs made it impossible to get into the low risk category, pretty much unless I could get a real substitution. Still I’m finding working in the commercial sector more refreshing, faster paced, less meetings and frankly would find it hard to go back to working with the civil service again. The last place I worked at (and left when hey made the BET announcement) had to put everyone’s rate up to keep them. They might collect more tax, but now the staff costs have gone up. Do HMRC include that in their assessment of tax collected?
I’ve always said – if they want IR35 to stick, they also need to start paying out sickness, redundancy and benefits claims, support unfair dismissal employment tribunals(no formal redundancy notification), and give us paid holiday rights. If we really are disguised employees in the eyes of the state. Can’t have it just 1 way and collect the tax.
However if they want a flexibile, mobile workforce that covers their own bench time with cash at hand in the company, can travel to where the work is and cover their own accommodation costs, and still contribute more in tax than a typical employee… stick IR35 in the bin. IF its all about NI, then scrap NI as Taxpayers alliance have suggested and at least be honest and call it workers employment tax and employers employment tax.
Be wary though… I think they are planning to use the employment status indicator instead. Have you tried that one out….http://www.hmrc.gov.uk/calcs/esi.htm.
If the employment status indicator calculator is to be used instead, then the algorithm used should be made public.
From :http://www.hmrc.gov.uk/employment-status/index.htm
[b]Summary[/b]
Whether a worker is an employee or self-employed depends on a range of factors, but the final opinion is not reached by adding up the number of factors pointing towards employment and comparing that result with the number pointing towards self-employment. [b]The courts have specifically rejected that approach.[/b]
It is a matter of evaluation of the overall effect, which is not necessarily the same as the sum total of all the individual details. Not all details are of equal weight or importance in any given situation. [b]The details may also vary in importance from one situation to another.[/b]
“When the detailed facts have been established, [b]the right approach is to stand back and look at the picture[/b] as a whole, to see if the overall effect is that of a person working in a self-employed capacity or a person working as an employee in somebody else’s business. If the evidence is evenly balanced, the intention of the parties may then decide the issue”
A developer wouldn’t want to code that algorithm!
A system tester may relish the opportunity to keep rejecting the code attempt :).
Project Management would be a nightmare!
Even a Pareto aware Client would never be happy.