The HMRC have announced that they are scrapping the Business Entity Test, which has been part of the self-assessment process for contractors to determine whether they fall inside or outside the IR35 legislation.
The Test has been used for two years and helped determine if contractors need to pay full amounts of income tax and national insurance for 2 years but is to be withdrawn from April next year. The HRMC suggested that the tests are “used very little” and “not fulfilling their intended purpose”.
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The tests involves 12 questions, which contractors can complete in order to determine how likely the HMRC will conduct an IR35 enquiry into their employment status, however the department have said that it will not be opening any new enquiries from the April 6, although it will continue with those started before that date.
If contractors in this timeframe rank in the low risk band or clearly fall outside of IR35, then the enquiry will be closed and it will be at least three years before they are contacted by HMRC for this reason again, but companies will still be required to keep records for 36 months showing their Business Entity Test results.
The HMRC outlined its intentions to withdraw the test in a statement via its website, following a review of the self-assessment process by members of the IR35 Forum, but has said it will publish more detailed guidelines shortly.