The majority of UK contractors do not trust HMRC’s Employment Status Service (ESS) tool to make accurate decisions about the IR35 status of public sector contracts, according to research from insurer Qdos Contractor.
The tool was launched following changes which mean that from April 2017, IR35 status for those in the public sector is determined not by contractors themselves but by their clients. If a public sector client decides that IR35 should apply to an engagement, the fees they pay their contractor will be taxed at source as if they were an employee.
Qdos Contractor's survey of 1,508 UK contractors found that 31% have had their IR35 status changed since April, and 7% have not yet had a determination.
More than four in five (85%) reported that they do not trust the tool to make accurate decisions. When asked why, responses included complaints about constant changes being made, and individual circumstances not being considered.
Qdos Contractor's CEO Seb Maley expressed concern with the findings. “That such a high proportion of contractors don’t trust the very tool used by many public sector clients and agencies to determine their IR35 status is worrying,” he said. “On release the tool was found to give inconsistent results, and regular changes and on-the-go updates have hardly helped.
“While many contractors surveyed have not seen any change to their IR35 status, that isn’t to say any tweaks made to the ESS tool going forward won’t change initial decisions. We’re noticing that contractors undertaking very similar projects are being given completely different results, along with some blanket decisions given to entire contractor workforces. Given how much rests on this it’s important that a fair, accurate and proper test is carried out, with each case looked at individually."
Jordan Marshall, policy development manager for IPSE, told HR magazine that the government must take action. “It’s no surprise that contractors do not trust HMRC’s IR35 tool: it was clearly not ready when it was launched, and the constant tweaking since then has only created more uncertainty,” he said. “The inadequacy of the tool compounds the problems with IR35 and the new legislation for the public sector.
“Clearly changes must be made. The government should take immediate action to ensure both that public sector clients have an internal appeals process and that hirers understand the new legislation does not mean they need to limit their use of contractors. It must also be made clear that if a public sector body judges in advance that a role is inside IR35 they should then offer it as employment.”
Maley called for improved communication. “Clear, direct communication between the contractor, the public sector employer and – if involved – the agency can only improve the situation,” he said.