HMRC comes under fire from providers

HM Revenue & Customs’ new Employment Status Service (ESS) tool to determine the IR35 status of public sector contractors has come under fire from contractor service providers.

The tool, launched ahead of a new requirement on public sector companies to set the IR35 status of contractors they engage from 6 April, is facing criticism from service providers just a day after its launch.

Commenting on the new tool’s launch, Dave Chaplin, CEO and founder of contractor portal ContractorCalculator, says: “HMRC will stand by the result given ‘unless a compliance check finds the information provided isn’t accurate’, which is no guarantee at all, because they just have to say ‘you are wrong’ and it doesn’t count for anything!

“Not only does it not mean anything, but the tool gives a significant number of contractors an ‘unknown’ status. Claiming they will stand by this is hardly pioneering work and does not provide the certainty to the market, which was their original goal.

“It gets worse. The tool now passes some contractors who should clearly fail. For them to stand by the outcome is not only misrepresentation, but is effectively trying to override the law of the land. Does HMRC have these powers?”

Contractors – take your pick: La La Land or Limbo Land?

Chaplin adds that with only a few weeks to go before the IR35 changes come into force, he believes HMRC’s tool is “nowhere near fit for purpose”. “HMRC could be handing out employment status decisions to contractors, agencies and public sector hirers that are wrong – or simply leaving them in Limbo Land,” he says.

He urges public sector bodies to consider alternative testing to establish a contractor’s correct IR35 status and have their standard contracts reviewed by qualified lawyers.

“Contractors – take your pick: La La Land or Limbo Land?” he concludes.

Contractor tax adviser Qdos Contractor CEO Seb Maley adds: “If, as a contractor, you don’t have the right to send a replacement, there is little prospect of the tool deeming you outside IR35, even if you have control over how the work is done.

“The consequences of mistakenly placing a contractor inside or outside IR35 are huge for all concerned; 85% of contractors plan to leave the public sector if they are placed inside IR35 by their public sector engager, while recruitment agencies will be left to pick up the bill for any missing tax.

“With little time until changes to IR35 in the public sector are enforced, it’s concerning that HMRC’s new tool has only just been released. Changes are imminent, and there isn’t much time to iron out any teething problems.”
 
But in response to the criticism, a spokesperson for HMRC claimed in a statement sent to Recruiter that none of the providers' claims were correct."The tool is working correctly and has been extensively tested. We welcome feedback from users," the spokesperson added.

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