The IR35 legislation was introduced to address perceived tax avoidance where an individual provides services through an intermediary, from which the individual receives dividends which are not subject to income tax and national insurance contributions.
Following a recommendation from the Office of Tax Simplification in March 2011, HMRC introduced guidance on the risk-based approach it would adopt when considering compliance with the IR35 rules, in the form of business entity tests (BETs).
The 12 BETs each have points assigned to them, for example, if the supplier bears the costs of putting right mistakes, they are allocated four points. The higher the point score, the lower the risk. If an individual can demonstrate they are outside IR35, or in the low risk category (more than 20 points) then HMRC would close any IR35 review and not undertake a further review for three years.
Following a review, which found that BETs were not being used and were not fulfilling their intended purpose, HMRC has decided to withdraw BETs from 6 April 2015.
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