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Their card was finally marked after the IR35 Forum, which introduced them in the first place, reviewed the approach to administering IR35, including BETS, and found that they 'were not helping customers'.
The tests were intended to help businesses assess their risk of being investigated by HMRC on an IR35 enquiry. However, they were incorrectly used to try to determine IR35 status. This was later compounded when they formed the basis of an assessment on contractors status by Government departments who were under attack after many senior public sector workers were found to be operating as liited companies to reduce their tax liabilities. (See: Business tests for public sector freelancers should be abolished - Shout99, Sept 2014)
Disaster
All in all, the BET tests have been a disaster from day one.
Finally, the very group - the IR35 Forum, which comprises civil servants and industry representatives - that introduced them had to admit that they were:
- used very little, and
- not fulfilling their intended purpose.
Welcome
Two of the representative bodies who were on the Forum which created and introduced them, welcomed their removal.
The decision was welcomed by freelancer group IPSE, who, under its previous incarnation as the PCG, had campaigned for a series of business-identifying tests and was on the original Committee which introduced them.
Director of Policy and External Relations, Simon McVicker, said: "The BETs had the potential to bring real clarity to independent professionals working through their own limited companies. Instead the tests were badly designed, poorly scored, and misused from the outset, much to IPSE’s dismay.
“I am therefore pleased to hear that they will finally be scrapped. They have created more uncertainty, not less, with clients especially in the public sector, wrongly using them to assess the tax status of contractors."
Simon McVicker led a working group of HMRC's IR35 Forum on the Business Entity Tests. All the external members of this group supported the abolition of the tests, which they argued were flawed in both scoring and application from the outset.
Although HMRC has made it clear the tests are in use until April 2015, Mr McVicker said: "Businesses and the public sector must now stop using the BETs. There are no shortcuts when it comes to engaging highly professional contractors: clients must provide good, solid contracts with independent professionals and establish clearly what the business relationship will be at the outset."
Samantha Hurley, Head of External Affairs and Compliance at agency representatives, APSCo, said: “This is another positive result for APSCo and the IR35 Forum. When I was asked to give evidence earlier in the year at the House of Lords Select Committee which was set up to review the use of Personal Service Companies, I pointed out that APSCo had very real concerns regarding the misuse of the BETs which were being utilised by some public sector departments to define an individual’s employment status for tax purposes i.e. whether a contractor is definitely inside or outside of IR35.
"We were particularly concerned by the scoring of the questions which made it virtually impossible for any independent professional contractor, running his or her own limited company, to pass. This was never the original intention of the BETs and the subcommittee for the IR35 Forum, of which APSCo was a part, called for their withdrawal.
“We are therefore extremely pleased that HMRC has accepted this recommendation and trust that the Treasury will also communicate with departments to confirm that their use as a way of determining whether a contractor is in or outside of IR35, is not appropriate.”
In the meantime....
There is six months before the the BETs are removed. Until then, businesses can continue to take the BETs if they wish or are asked to do so as part of a tendering process.
And although HMRC says they won't be taken into account when HMRC opens an IR35 enquiry on or after April 6 2015, if it 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 three years if the information provided is accurate and circumstances (in particular working arrangements) don't change in that time.
When HMRC has previously closed an enquiry based on a result of the BETs then they won't open another IR35 enquiry within the three year period previously notified to the business. Where HMRC closes an IR35 enquiry based on the BET results, the business is advised to keep those results and any evidence relied on to take the tests for at least the three year period involved.
HMRC will also withdraw the example scenarios published with the BETs from April 6, 2015. There are no plans to replace the BETs or example scenarios. HMRC will shortly publish updated guidance on the gov.uk website.
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IR35, BETs and more....
For general coverage of IR35 policy and cases - and the rise and fall of the BETs - see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2014
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