IR35: HMRC withdraws business entity tests

HMRC is to withdraw the IR35 Business Entity Tests after the IR35 forum concludes that they are little used and not fulfilling their intended purpose.

The IR35 Forum has recently reviewed the new approach to administering IR35 introduced in 2012. This review included the Business Entity Tests (BETs) that businesses can take to self-assess their risk of IR35.

The review found the BETs were not helping taxpayers as they are:

  • used very little, and
  • not fulfilling their intended purpose.

As a result the review recommended withdrawing the BETs. HM Revenue & Customs (HMRC) has accepted this recommendation and will withdraw the BETs from 6 April 2015. Until then, businesses can continue to take the BETs if they wish or are asked to do so as part of a tendering process.

The BETs won't be taken into account when HMRC opens an IR35 enquiry on or after 6 April 2015. However, if HMRC 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 3 years if the information provided is accurate and circumstances (in particular working arrangements) don't change in that time.

Where HMRC has previously closed an enquiry based on a result of the BETs then they won't open another IR35 enquiry within the 3 year period previously notified to the business.

Where HMRC closes an IR35 enquiry based on the BET results, the business should keep those results and any evidence relied on to take the tests for at least the 3 year period involved.

HMRC will also withdraw the example scenarios published with the BETs from 6 April 2015. There are no plans to replace the BETs or example scenarios.

HMRC will shortly publish updated guidance on the GOV.UK website.