HMRC dismisses claims IR35 tool facilitates tax avoidance

HMRC

HM Revenue & Customs has hit back over “completely incorrect” claims its new IR35 status tool could be facilitating tax avoidance.

ContractorCalculator – a provider of advice and information to contractors and freelancers – claimed the tool, launched in light of new rules that came into force last week, to help contractors work out their IR35 status, could be facilitating tax avoidance. 

Their claim was based on disparities between results from more than 558 contractors who used HMRC’s Employment Status Service tool, when measured against ContractorCalculator’s own newly-launched IR35 testing tool. 

But in a statement sent to Recruiter, HMRC called the company’s claim “completely incorrect”.

“We do not oblige anyone to use the tool but we stand by its results where correct information has been inputted in line with the guidance,” HMRC said.

“If incorrect information is inputted, the results will be skewed but that has nothing to do with the reliability of the tool.”

ContractorCalculator’s findings claimed that:
 
•    29% of contractors are told by HMRC that they pass IR35, when ContractorCalculator’s tool fails them. The majority of these (19%) are also very strong fails.
•    24% of contractors are told by HMRC that their status is unknown.  Of those unknowns, ContractorCalculator agrees with 4% of the results.  But 60% of that group are clear-cut passes or clear fails and should be easily identifiable.
•    3% of contractors who HMRC fails should actually pass.

Commenting on the findings, ContractorCalculator CEO Dave Chaplin said: “These figures firmly back up what agencies and providers have been telling us for months, that the HMRC tool cannot be trusted.  

“Twenty-nine per cent of contractors should be caught by IR35 and HMRC has passed them, therefore inadvertently facilitating tax avoidance.  
 
“The market is in utter chaos, and contractors are unnecessarily abandoning government projects due to blanket rules that are being put in place because of the confusion created. The NHS is also suffering, with the BBC recently reporting that some hospitals fear locums will refuse work and not turn up for shifts because of a drop in pay of up to 25%, when tax and national insurance is deducted at source under the new reforms.
 
“Public sector bodies are opening themselves up to significant litigation risks by putting in blanket policies. They have not taken ‘reasonable care’ as the legislation dictates, and by forcing contractors into false employment they are opening themselves up to the risk of litigation.
 
“And the frustrating thing is – all this could have been avoided if HMRC had actually listened to stakeholders.”

 

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