New research by online tax advisory service ContractorCalculator has found that HMRC’s much-delayed online IR35 assessment tool continues to yield unreliable results three months after it was made available to public sector bodies (PSBs).
According to ContractorCalculator. far from assisting PSBs to make accurate decisions about their contracting professionals’ IR35 status, the unreliability of the Employment Status tool is hindering their efforts to determine the true tax status of their off-payroll staff.
The tool was launched in March this year and was intended to help PSBs accurately evaluate the tax status of their contracting professionals before controversial reforms to IR35 came into effect just weeks later on 6th April.
Those who criticised the reforms during the consultation phase as “unfair and unworkable” included Umbrella Company trade associations PRISM and the Freelancer and Contractor Services Association (FCSA) as well as the Association of Professional Recruitment Companies (APSCo), the Recruitment and Employment Confederation (REC) and the Association of Recruitment Consultancies (ARC).
ContractorCalculator’s new research has detected a sharp increase over the last few weeks in the number of cases where HMRC’s tool has returned an “unknown” result. The study entered the details of 21 high-profile IR35 court cases into the Employment Status instrument, which yielded an “unknown” outcome no less than 38 per cent of the time.
This compares unfavourably to a similar study conducted by ContractorCalculator in March. On that occasion, when the same data was passed through the tool, it produced an “unknown” result in 27 per cent of instances. This was in itself sufficient to prompt the organisation to question the tool’s overall effectiveness.
ContractorCalculator’s founder and CEO, Dave Chaplin, told Computer Weekly that the Employment Status tool is yielding results that are out of step with IR35 case law. He said: “We have repeatedly warned HMRC that a robust online test could not be developed within such a short tmeframe, and now we are seeing the whole thing unravelling.”
A major problem with the tool, according to Mr Chaplin, is its adoption of a tick-box approach, which fails to take account of the fine details of each individual contractor engagement as laid down by Justice Nolan in 1993 in the Hall versus Lorimer case.
The HMRC tool doesn’t work like this at all, Mr Chaplin said, adding: “Sorry HMRC, but despite these amendments, it’s back to the drawing board.”
HMRC has rejected ContractorCalculator’s claims. In a statement to Computer Weekly, a Revenue spokesperson insisted that the tool does deliver accurate and reliable outcomes when used properly, adding: “If incorrect information is input, the results will be skewed, but that has nothing to do with the reliability of the tool.”