BETs to be scrapped by HMRC

Wednesday 29 October 2014

Business Entity Tests (BETs) are to be scrapped by HM Revenue and Customs (HMRC) from April next year following a review undertaken by an IR35 Forum focus group on the IR35 legislation.

This forum is made up of independent advisors, including Brookson, who specialise in the flexible labour market. BETs were intended to aid limited company contractorssole traders and other self employed professionals in assessing their risk of facing an IR35 enquiry.

The forum’s review of the BETs concluded that some public sector clients had been using BETs incorrectly as a means of establishing employment status. This was just plain wrong and action was required to protect these contractors from being treated unfairly as a result of incorrect application of tests which were not intended for this purpose.

According to the group, BETs are "not working in the way they were intended" and they came to the conclusion that "it would be best if they were abolished.” This suggestion was made ahead of the publication of its review of processes piloted as part of IR35, which could fuel decisions made in Parliament over the legislation. HMRC agreed with these concerns and have confirmed their abolition from next April.

Carl Henning, solicitor at Brookson Legal Services said: "The decision to scrap the BETs, together with the overall review from the IR35 Forum could pose further changes to HMRC’s approach to this legislation. While this area has been confusing for contractors, it is intended to make their lives easier and improve the situation for UK taxpayers. In the meantime, anyone facing any difficulty to IR35 should seek out a contractor accountant or specialist solicitor for advice."

Carl further notes that: “the removal of the BETs may leave us with a vacuum which some public sector bodies may look to fill with something as equally unhelpful, so contractors need to be vigilant and seek advice early to avoid clients taking matters into their own hands”.  

At present, HMRC is struggling to raise awareness and understanding of IR35. It has said that it would rather help taxpayers better understand IR35 legislation rather than having to launch investigations later to collect any tax that is owed.

Nevertheless, it seems that HMRC has been consistent with its approach during IR35 enquiries and it says that it has received plenty of positive feedback. What's more, it has been told that it is becoming more and more transparent about the information it needs and increasingly focused on the key issues.

HMRC has also promised to improve and address a number of areas relating to IR35, including staying open and consistent, being clear about why an enquiry is continued, making sure the agency is kept informed and delays are managed to make sure the enquiry does not lose its momentum.

By Victoria McDonnell

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