IR35 Forum-backed group wants BETs to die

The prospect of the taxman having to unceremoniously drop the Business Entity Tests has been raised, after a focus group backed by the IR35 Forum found them to be “not working”.

The group, made up of independent advisers, met twice to consider and discuss the BETs, which HMRC piloted in 2012 to help contractors assess their risk of an IR35 enquiry.

Not for the first time, it was pointed out that the BETs are being used “incorrectly” by public sector clients, who tend to wrongly use them as a tool to establish employment status.

The general consensus of the group was even more damning – that BETs are “not working in the way they were intended” and that therefore,  “it would be best if they were abolished.”

Such a drastic recommendation to the IR35 Forum comes just as its review into the piloted IR35 processes (including the BETs) is due to be published. The review has decision-making powers.   

Disquiet around the tests dates back to their unveiling in May 2012, when they were attacked by figures from the recruitment, small business, contracting, legal and tax professions.

It is ongoing in this current quarter, as Abbey Tax admits that while its IR35 advisers always need the full detail of a client’s working practice to advise, the BETs are “rarely considered.”

Writing for ContractorUK in July, the firm explained that unless there is good reason, it disregards the BETs as “very rarely” do they suggest any other risk than ‘medium’ or ‘high.’

They also “simply do not help” because high or medium risk does not mean the worker is inside IR35 and, likewise, ‘low risk’ does not mean the worker is outside IR35.

The IR35 Forum-backed focus group also says the six IR35 Scenarios are unhelpful. Unveiled with the BETs, they are meant to show when and why IR35 does or does not apply.

“Many of the focus group didn’t find them helpful,” says the IR35 Forum’s May minutes, published by HM Revenue & Customs (HMRC) this week.

“It was felt that there was not enough detail in the scenarios and that it would be better to have a summary of the case law.”

The IR35 Forum’s May meeting also heard that:

  • Segmenting the IR35 population would help with who HMRC awareness campaigns about IR35 should target. People who are very aware of IR35; newly formed one-person PSCs, veteran contractors and the vulnerable are the demographics identified.
  • HMRC is keen to continue to improve its consistency of approach to those it investigates under IR35, so it will address how it can be clear to taxpayers (and their advisers) about the reasons for continuing an enquiry.
  • The tax authority hopes to ensure that agencies and PSCs are kept informed during an enquiry, and it wants to better manage any delays in the investigation process.
  • IR35 enquiries could, in “many cases” according to HMRC, be progressed much more quickly where they are able to meet with the client. But as the Revenue does not have the power to force attendance,  it was suggested that taxpayers’ agents may be more inclined to meet with HMRC if it sends agents the questions the inspector wants to ask alongside the meeting request.
  • HMRC is aware that some of the reticence to meeting with its officials is because doing so would invalidate some insurance policies.
  • IR35 Forum members will be written to and asked by HMRC whether they wish to continue membership. A few more members will also be sought, particularly if they are end-clients or can give the end-client perspective. The British Banking Association was mentioned as a potential member, as was the Cabinet Office.
  • The IR35 Forum will still be in existence after the general election because the forum’s remit is to help  HMRC improve the administration of IR35 and the election would not affect this. However by the election, the forum’s terms of reference will have likely been updated.
  • This month (September) was when the final report reviewing the IR35 processes introduced in May 2012 should be published and made available to the public.
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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