IR35 Forum says BETs should end

Wednesday 24 September 2014

Business Entity Tests (BETs) have come under fire from a focus group on the IR35 legislation, which states that they should be scrapped.

The IR35 Forum detailed this suggestion in the recent release of the minutes of its meeting on May 7th, following concerns that BETs might be being used incorrectly in the public sector.

This forum is made up of independent advisors and has met twice to discuss BETs, which were introduced by HM Revenue and Customs (HMRC) in 2012. BETs are intended to aid limited company contractors, sole traders and other self employed professionals in assessing their risk of facing an IR35 enquiry.

In the minutes, it was said that some public sector clients had been using BETs incorrectly as a means of establishing employment status.

Additionally, it looked into the six scenarios used to help contractors decide on their IR35 status, which were detailed in HMRC's guidance from May 2012. The group said that these were not helpful and that a summary of case law would be better.

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.”

It has made this suggestion ahead of the publication of its review of processes piloted as part of IR35, which could fuel decisions made in Parliament over the legislation.

This is not the first time that BETs have been criticised as figures from recruitment, small business, contracting, legal and tax professions attacked them back in May 2012.

HMRC previously attempted to dispel the concern that a contract could change the status of employment. It said that whether or not someone is employed or self-employed should be decided based on their actual working practices.

Carl Henning, solicitor at Brookson Legal Services said: "The comments and the upcoming review from the IR35 Forum could pose further changes 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 for advice."

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 on the issue. 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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