Businesses will no longer be able to self-assess their risk to IR35 from April 2015, HMRC has announced.
IR35 was introduced to address national insurance and tax avoidance schemes by allowing HMRC to tax some contractors as though they were employees of their clients.
A review by the IR35 Forum found that Business Entity Tests (BETs), which allow businesses to calculate their risk to IR35 legislation, have proved unfit for purpose and will be scrapped next year.
The review recommended BETs are scrapped because:
- they are rarely used
- they are not achieving their intended purpose.
As a result of the review:
- from 6 April 2015, BETs will not be taken into account by HMRC
- a business can show HMRC the BET results if HMRC opens an enquiry before then
- there are no plans to replace the tests
- HMRC will publish guidance on the gov.uk website.
Simon McVicker, director of policy and external relations at the Association of Independent Professionals and the Self Employed (IPSE), 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.”
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