HMRC’s troubled Business Entity Tests, launched in 2012 and designed to allow freelancers and contractors to self-certify their IR35 status, look like they may not be long for this world. The publication of the most recent minutes of the IR35 Forum have revealed that focus groups held by IPSE (née PCG) found the Entity Tests – a series of 12 unequally-weighted questions – are “not working in the way they were intended”, and advisors and practitioners feel it would be better if they “were abolished.”
It was highlighted that the Entity Tests are being incorrectly applied in the public sector, where they are being used to determine overall employment status rather than just IR35 status. After facing a public outcry over highly paid staff working through their own limited companies, the BBC has been particularly forthright in its application of employment status tests.
The Business Entity Tests also contain six “example scenarios”, featuring fictional contractors designed to help demonstrate how the Tests can be applied in the real world. Unfortunately for Emma, Juanita, Hamish, Barbara, Costas and Praveen their predicaments – although not a source of controversy themselves – were deemed unhelpful due to a lack of detail.
The Forum also discussed raising awareness of IR35 legislation both amongst the self-employed and amongst smaller accountancy firms, which may not be contractor specialists and therefore lack the appropriate knowledge. A segmented approach was suggested, which splits taxpayers into four distinct groups, to enable better awareness campaigns. The groupings are:
- People who are very aware of IR35 and know where to go for help
- Contractors who are setting up a limited company for the first time and are completely unaware of IR35
- Those who have been contracting for a long time but are unaware of IR35
- Vulnerable customers
This approach was unanimously supported by IR35 Forum members and a similar approach will be established for accountants and advisors.
You can read the latest IR35 Forum minutes here (PDF).