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The idea was that by providing a set of questions and examples, contractors would be able to identify whether or not they were at risk of an IR35 investigation.
However, the reality was very different from the theory.
In effect, they were used to identify status rather than risk - a function for which they were never intended.
And then, the waters were further muddied when the Government decided to use them as a guide line on whether contractors were actual contractors or disguised employees when being recruited for public sector positions.
Finally, defeat was admitted when the IR35 Forum and HM Revenue and Customs recognised that the tests were not fit for the purpose they were designed, nor the purpose for which they were being used...and abolished them. (See: HMRC abolishes controversial Business Entity Tests - Shout99, Oct 2014.)
UK200Group - from 'gobbledygook to acting blind'
Several members of the UK200Group for independent accountancy and lawyer firms welcomed the move to remove the tests, but flagged up their inadequacies in the first place.
James Abbott, director at Abbott Moore and Chair of the UK200Group Freelancers and Contractors Forum, said: “This is a welcome decision. Despite the increase in IR35 enquiry activity, these tests were so far wide of the mark as a measure of whether IR35 actually applied that few advisers or freelancers made use of the them.
"It’s the law that matters and a genuine right of substitution, lack of control of how to do the work and lack of obligations for the client to offer work and the freelancer to accept, will always be the pillars of any IR35 defence, BETS or no BETS.”
Jonathan Russell, partner, UK200Group member firm ReesRussell said: “HMRC produces a mass of guides but few of them are simple and that may not be the fault of the guides but that the tax system itself it too complex. The Business Entity Tests being dropped is no surprise as this was something which was being used extensively and HMRC was as a result failing on many of its IR35 challenges when the tests were applied.”
David Ingall, past president, UK200Group, said: "So now we go from entirely impenetrable HMRC gobbledygook to acting totally blind. O, Brave New World!”
Lawspeed - confusion
Compliance and recruitment law specialist Lawspeed identified one of the main flaws in the tests which examined a contractor's own business rather than the realtionship with the client.
Theresa Mimnagh from Lawspeed, said: "The test was always surprising as it looked at the contractor’s business rather than the relationship with the hirer, and IR35 is a tax that is based on the quasi-employment relationship with the hirer.
"We hope that new guidance will help simplify the understanding of contractors so that further confusion is avoided. However, HMRC is likely to use new guidance as another opportunity to explain the law in order to more easily identify those contractors who are caught by the rules.”
Association of Recruitment Consultancies - simpflication
Association of Recruitment Consultancies (ARC) said: “We are keen to see simplification of the law and guidance in a number of areas, IR35 being just one. Our recent discussions with Government representatives following the ongoing review into employment related issues indicates that the Government recognises the value in simplification and we welcome all steps it ultimately takes in that direction."
ARC is also pressing the government to simplify rights for agency workers so that the existing confusion as to whether they can also have employment rights against a hirer is cleared up.
Interim Management Association - replacement
While the Interim Management Association (IMA) welcomed the decision to remove the tests, it felt that it had left a gap which needed to be filled with some sort of replacement to bring clarity to the IR35 situation.
Simon Drake, IMA chairman, said: “We welcome the decision made by HMRC to withdraw BETs – which were making it even more confusing to assess IR35 risk. Within central Government, as an example, hiring managers are inappropriately using the BETs to help seek assurance of the IR35 status of interim managers to meet procurement guidelines.
“Although the BETs have been removed, we believe that something else does need to be introduced to help bring greater clarity in relation to IR35 – creating a level playing field for all. However, the statement from HMRC advises there are no plans for a replacement for the tests.
“We would always recommend contacting HMRC directly for guidance.”
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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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