IR35 Business Entity Test
IR35 was designed to tax earnings derived by an individual who provides their services via an intermediary, typically a personal service company, on the basis they had been employees of the engager.
The legislation has a chequered history and a number of attempts have been made to make it more effective. One of the more recent attempts included the introduction of the Business Entity Tests (“BETs”) in 2012 where-by a business could self-assess their risk of coming within IR35.
Following a review, HMRC has accepted recommendations to withdraw the BETs with effect from 6 April 2015. Until this date businesses will still be required to apply the BETs.
However, HMRC have confirmed that whilst they will not apply BETs to any IR35 enquiry commencing on or after 6 April 2015, they will close any existing enquiries where the BETs have been applied and the business can demonstrate that it is considered to be outside of IR35, or in a “low risk” band. Furthermore, HMRC will not open another enquiry under the IR35 legislation for at least 3 years.
IR35 will continue to be a contentious issue and one which businesses need to keep under constant review.
Contact our Director of Employment Tax, Nick Bustin, for further details and assistance by calling +44 20 7969 5578 or sending an email and he will get back to you.