Changes to IR35

Inland Revenue guidance, known as IR35, was brought in in 1999 to stop people who, in the Revenue’s eyes, should be employed, benefiting from lower taxation by trading through their own limited companies instead of being paid through PAYE.

Those at risk were usually companies who only employed their directors and had only a few customers.

In order to help taxpayers decide whether they were caught by IR35 rules, HMRC introduced the “Business Entity Tests” or BET’s. This was a series of questions which, depending on the total score, told the taxpayer whether they were at a low, medium or high risk of IR35.  The benefit to the taxpayer was that the answers to the questions could be used as a defence if HMRC were to investigate their IR35 status.

However, it was recently announced that the use of the BET’s would come to an end because the questions “were not fulfilling their intended purpose.” The BET scores will not be taken into account when HMRC launches enquiries after 5 April 2015, although there has been no announcement on what new guidance will be introduced.

It is worth noting that in 2011 the office for tax simplification called for IR35 rules to be suspended while they are reformed. Up until now, HMRC have decided to keep it as it was.

If you would like any help deciding whether or not IR35 applies to you, please call me on 01733 372681 or email me at: david@greenstones.co.uk

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