Plunge in contractor numbers using IR35 tool
Just 10% of contractors are now using HMRC’s IR35 status tool with accuracy issues continuing to plague the service, according to recent research.
HMRC’s tool, originally called the Employment Status Service (ESS) but later renamed Check Employment Status for Tax (CEST), has come under fire from contractors and industry bodies, who feel it is not fit for purpose.
Since the tool and the new legislation came into effect in April 2017, online contracting site ContractorCalculator has surveyed more than 6,000 contractors and found that just one in ten now use the tool, down from a high of 28%.
Of the 1,100 contractors surveyed who do use the tool, 25% are being given an “IR35 does not apply” result when ContractorCalculator believes it does apply. Approximately 24% are being given an unknown result when ContractorCalculator argues that two-thirds of the ‘unknowns’ are clearly inside or outside, but HMRC’s tool cannot determine this.
In addition, 45% of the “IR35 does not apply” results are based solely on substitution and do not take any other factors into account. ContractorCalculator found that at least 25% of those given passes by HMRC, and passing substitution, were in fact found to be caught by IR35.
Claims ‘completely incorrect’
Earlier this year HMRC hit back at claims its updated tool is not fit for purpose, saying the argument is “completely incorrect”.
An HMRC spokesperson told AccountingWEB: “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. If incorrect information is inputted, the results will be skewed but that has nothing to do with the reliability of the tool.”
The damage has been done, chaos has ensued and now the tool is hardly being used.”
Commenting on the latest figures Dave Chaplin, CEO and founder of ContractorCalculator, said: “Substitution is very rare in the contracting market, so for HMRC to pass 45% of contractors based solely on substitution without considering other factors is not only contrary to how status is tested in the courts, but also in stark contrast to the reality of the working practices of most contractor engagements.
“The rollout of the IR35 reforms was underpinned by the promises made by HMRC that their CEST tool would provide public sector hirers, agencies and contractors with certainty. But clearly people have now lost faith in the tool. We know from a survey we conducted in the summer that 61% of contractors have turned their backs on the public sector because they refuse to work under IR35 off-payroll rules and now contractors have turned their backs on using the tool that HMRC built to underpin their IR35 Reforms.
“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.”