IR35 – October 2014 update

The IR35 Business Entity Tests and example scenarios have been with us for over 2 years now, but are they working?

No, according to the minutes of a recent meeting of the IR35 Forum consisting of a focus group of independent advisers, who concluded that the business entity tests were not working in the way that they were intended and that it would be best if they were abolished.

Many of the focus group members did not find the six scenarios helpful, and according to the minutes: “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 tests have been subject to regular criticism, not least, because they do not include all of the relevant factors that must be considered in determining employment status and ultimately the tests themselves have no force of law. Whilst a taxpayer may record a low score on the tests that is no guarantee that he will caught by IR35, and conversely a high score does not mean that the taxpayer will fall outside IR35.

Despite the lack of clarity, we do have experience of some Government organisations using the tests as a definitive guide and have rejected from consideration those contractors who record a low score.

It will be interesting to see what steps the Treasury take in response to the criticism.

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