The IR35 Business Entity Tests will be dropped from 6 April next year, Her Majesty’s Revenue & Customs (HMRC) has announced.

HMRC’s action follows a review by the IR35 Forum,  in which the tests – designed for businesses to take to self-assess their risk of IR35 – were found to be used very little and not to fulfill their intended purpose.

The web site Contractor Calculator defines IR35 is tax legislation announced in 1999, which took effect from April 2000. The legislation means that the Revenue can tax some contractors as though they are employees of their clients. Contractors caught by IR35 pay significantly more tax.

HMRC will shortly publish updated guidance on businesses’ self-assessment for risk of IR35 on the gov.uk web site.

Responding to HMRC’s announcement this week, Tom Hadley, director of policy and professional services at the Recruitment & Employment Confederation, has urged HMRC to be clear about its intentions and “ensure that the updated guidance is fit for purpose, easy to find and fully integrated with the relevant tax information on the gov.uk web site”.

The Association of Professional Staffing Companies (APSCo) welcomed the HMRC announcement. “We… trust that the Treasury will also communicate with departments to confirm that their use as a way of determining whether a contractor is in or outside of IR35 is not appropriate,” said Samantha Hurley, head of external affairs & compliance at the professional body.

Paul Murphy, business manager at contractor accountancy firm Simplyco welcomed the dropping of the tests, saying that they had “just added a further layer of complication to an already complex piece of legislation”.

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