Business Entity Tests

**SimonMac** · 25 March 2013, 20:14

Originally posted by socialworker View Post

I would appreciate some informed views on here about the HMRC business entity Test.

Before talking about these, Ive noted on here that experienced people advise that if you can prove just one of the following you are outside IR35,as all three must be in place to put you inside, i.e either Right of Substitution, Lack of Direction/control, or lack of Mutuality of Obligation. I thought I would be ok as I reckon I can show lack of MOO and 2 out of 4 points of lack of Direction.

Ive just looked at the business entity tests though and they don't seem to ask much that is relevant to MOO. I score about 10 making me borderline high risk even though I reckon I can reasonably claim lack of MOO and Lack of control.

Finally one of the BET questions asks if you worked for an end client under PAYE previously in the same role. If you did, you score minus 35 points making it an effective fail. I have worked through agency and umbrella for Company A since January, obviously paying PAYE through the umbrella. I had intended to carry on with Company A under the agency's Ltd Co contract with my ltd. Does this mean I fail this test on this contract? It seems so but I thought I'd ask.

finally, I see HMRC offer their own contract review service. Has anyone used this?

An umbrella company is not working for the client under PAYE, if you can't work that out maybe contracting is not for you, also I have not heard the one out of three, IR35 is not clear cut as a few words in the contract and you are in the clear, its a complex myriad of working practices.

**Apox21** · 25 March 2013, 20:18

I'd get your contract reviewed to give you an accurate opinion. There's way more to take into account than the Business Entity Test asks.

Ref working for the company you were employed by the umbrella etc. paying PAYE through them not the client. If you were a employee of the company they'd give you payslips and so the PAYE.

**socialworker** · 25 March 2013, 20:25

Originally posted by SimonMac View Post

An umbrella company is not working for the client under PAYE, if you can't work that out maybe contracting is not for you, also I have not heard the one out of three, IR35 is not clear cut as a few words in the contract and you are in the clear, its a complex myriad of working practices.

If you have anything actually helpful to say, please say it otherwise I can do without your schoolboy insults.

**SimonMac** · 25 March 2013, 20:33

Originally posted by socialworker View Post

If you have anything actually helpful to say, please say it otherwise I can do without your schoolboy insults.

**socialworker** · 25 March 2013, 20:36

Originally posted by Apox21 View Post

I'd get your contract reviewed to give you an accurate opinion. There's way more to take into account than the Business Entity Test asks.

Ref working for the company you were employed by the umbrella etc. paying PAYE through them not the client. If you were a employee of the company they'd give you payslips and so the PAYE.

Thanks

I realise on a straight interpretation of the words I would pass on the question, but it seems not impossible HMRC might interpret it more widely to include working through an agency as similar to working for the end client, since so many people work through agencies. As someone pointed out recently, banks will call you selfemployed even though you work through your own ltd co. So interpretation counts.

It may well be there is more to IR35 than the business entity tests but they have been devised for people to assess their risk, so if MOO and D&C are as important as some people who seem familiar with the case law think, it seems odd that the tests dont appear to test for them very much. At the end of the day it is down to HMRC whether they investigate you, so the tests HMRC devise surely must give some insight into their approach.

**Apox21** · 25 March 2013, 20:47

Originally posted by socialworker View Post

Thanks

I realise on a straight interpretation of the words I would pass on the question, but it seems not impossible HMRC might interpret it more widely to include working through an agency as similar to working for the end client, since so many people work through agencies. As someone pointed out recently, banks will call you selfemployed even though you work through your own ltd co. So interpretation counts.

It may well be there is more to IR35 than the business entity tests but they have been devised for people to assess their risk, so if MOO and D&C are as important as some people who seem familiar with the case law think, it seems odd that the tests dont appear to test for them very much. At the end of the day it is down to HMRC whether they investigate you, so the tests HMRC devise surely must give some insight into their approach.

The overarching basis of the Business Entity Test is to clamp down on disguised employees, MOO and D&C are clear indicators to everyone that you are acting in the same manner as an employee and not a supplier providing a service.

My advice is to get your contract assessed and if that is outside of IR35 you need to ensure that you operate your business in a supplier/client manner.

**socialworker** · 25 March 2013, 21:00

Regarding my comments about MOO and control, here is a quote from Malvolio in an earlier thread:

""There are three tests for being a real freelance. At their simplest:

* Are you told how to do the work (professional standards don't count, everyone has to work to them),

* are they bound to offer you work and can you refuse it if offered and not be paid, and

* do you have the right to offer a subsititute.

You only need one genuine one to put yourself outside IR35: all three is good but one - and a decent* representative - will suffice. I'm guesssing you can probably make the first two with reasonable ease."

**Apox21** · 25 March 2013, 21:17

Business Entity Tests

I wouldn't like to make an assumption on these 3 questions and if I could only satisfy 1 I'd be very worried!

**Sidekick** · 25 March 2013, 23:05

Business entity tests

Hi Socialworker,

There seems to be so much confusion on the tests and IR35. Here's my understanding.
Inside or outside of IR35 is a combination of your contract and your working practices. Personally I would not believe any advice that says 'if you do this then you're out of IR35', unless that person is the taxman.
The business entity test is a set of questions regarding your contract and your working practices. It will tell you HMRC's opinion of your risk. They also offer a contract review.
Ultimately only HMRC can tell you if you're outside of IR35, but you can assess your risk by taking the BET. (The humour of the acronym is too much for me).
Plenty of reputable firms offer a contract review service and that's a good first step. Then you'll need to make sure your working practices are aligned with running a company.
I've been trying to find people who have taken the BET also, but they seem to be thin on the ground and very silent. There was an online survey a few months ago and just under 70% of those with 10 points or less on the BET were inside of IR35, so imo it depends on your risk appetite relying on representation.
If you're worried, subcontracting is easier than you might think.
Hope this helps

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Business Entity Tests