HMRC introduced Business Entity Tests (BETs) in 2012 as a framework for contractors to self-assess their IR35 risk. They assigned a score based on factors like business premises, professional indemnity insurance, and advertising. HMRC withdrew the BETs in April 2015, stating they were too simplistic and not reliably accurate. They no longer form any part of HMRC's official assessment process.
What were the business entity tests?
The BETs were a points-based system covering 12 indicators of genuine business activity. Contractors scoring above a threshold were classified as "low risk"; those below were classified as "medium" or "high" risk. Factors included:
- Having business premises separate from the home
- Advertising for business
- Employing staff
- Having professional indemnity insurance
- Having multiple clients
- Having a business telephone number
Why were they withdrawn?
HMRC withdrew the BETs in 2015 for several reasons:
- They were found to be unreliable predictors of genuine IR35 status
- Contractors were gaming the system by ticking boxes without genuine business substance
- The tests overemphasised administrative factors and underemphasised the actual working relationship
- They created a false sense of security for contractors who scored highly but were in reality inside IR35
What should contractors use instead?
The correct approach is to assess each engagement based on the established employment law tests: substitution, mutuality of obligation, and control (see our status determination guide). HMRC's CEST tool is the closest equivalent to an official self-assessment tool, but it has significant limitations around MOO.
Do the BET factors still matter?
Whilst the formal BET scoring system is gone, many of the underlying factors still provide useful evidence of genuine business activity. Having a business website, professional indemnity insurance, multiple clients, and business premises does strengthen an outside IR35 position because it demonstrates genuine commercial independence. These factors are not scored, but they paint a picture that HMRC and tribunals find persuasive.
Do not use the withdrawn BET scoring system. Focus instead on the three main employment tests (substitution, MOO, control) and gather evidence of genuine business activity alongside them.
This guide provides general information only. IR35 is complex and the consequences of getting it wrong are significant. Always seek specialist advice from a qualified tax adviser. Find one via our accountant directory.