A new study has revealed a massive loss of confidence among public sector contracting professionals in HMRC’s heavily criticised IR35 status tool. Just ten per cent of contractors are now using it.
Contractor advice resource ContractorCalculator conducted the survey of 1,100 contracting professionals. The findings show that the proportion of contractors using the tool has plunged from a peak of 28 per cent (recorded just after its beta form debuted in April, when the new legislation took effect) to a mere one in ten today.
A quarter of the respondents who tried using the tool to figure out their employment status reported receiving an “IR35 does not apply” verdict, when ContractorCalculator believes that the new rules most certainly do apply.
A similar number received an “unknown” result. Again, on examination, ContractorCalculator believes that two-thirds of these contractors are unambiguously inside or outside the new rules, even though HMRC’s rudimentary tool seems incapable of deciding their status accurately.
The Revenue originally launched the tool as the Employment Status Service (ESS). Following intense criticism of its delayed launch, crude approach and inaccurate results, it received a new name – Check Employment Status for Tax (CEST).
ContractorCalculator CEO Dave Chaplin drew attention to the tool’s use of substitution as a criterion for IR35 determination. Substitution, he emphasised, is exceedingly rare in the contracting market, so for the Revenue to pass 45 per cent of contractors based only on substitution while omitting from consideration multiple other factors is contrary to the way that the courts test employment status. It also contrasts starkly with the working practices of most contractor engagements.
Noting that HMRC had promised that the rollout of the new IR35 rules would be supported by the certainty that its CEST tool would deliver to public sector end clients, agencies and contracting professionals, Mr Chaplin said that in reality, most people have now lost faith in it.
Citing a survey conducted by ContractorCalculator in the summer, which showed that 61 per cent of contractors had walked away from the public sector altogether because they refused to work under the new IR35 off-payroll regulations, he added that contractors are now rejecting the very tool that HMRC developed to underpin the controversial reforms.
Mr Chaplin said: “The damage has been done, chaos has ensued and now the tool is hardly being used. We would therefore urge HMRC to ditch the reforms altogether and conduct a proper investigation into what has happened. With the clear evidence building against them, HMRC must now surely acknowledge that it is not well positioned to roll out the reforms to the private sector.”