Contractor confidence in HMRC’s IR35 online assessment tool remains low

Contractors still lack confidence in using HM Revenue & Customs’ (HMRC) online tool to accurately assess their IR35 tax status a year on from launch, research from Qdos Contractor shows.

The government confirmed in the Autumn Budget 2017 that a consultation on whether to extend the reforms to the private sector is due to take place this year, as part of an ongoing clampdown by HMRC on limited company contractors working as disguised employees.

Of the more than 1,500 independent contractors questioned, 81% said they would be put off working for a private sector recruitment agency or business that solely relied on HMRC’s Check Employment Status for Tax (Cest) assessment tool to ascertain how they should be taxed.

The tool, introduced ahead of the public sector roll-out of the IR35 tax avoidance reforms in April 2017, is designed to help contractors, and the public sector organisations who hire them, work out if they should be taxed in the same way as salaried workers or off-payroll staff.

Research into its effectiveness has previously seen the tool accused of being “error-prone” and “unfit for purpose”. HMRC has previously vehemently denied these claims.

Seb Maley, CEO of Qdos Contractor, said the findings suggest – should the government see fit to extend the reforms to the private sector – private sector organisations could find themselves struggling to source contractors.

“Question marks still remain over Cest’s reliability and, understandably, contractors do not want to be wrongly placed inside IR35 and therefore made to pay similar taxes to an employee, but without any of the benefits,” said Maley.

“IR35 is a particularly complex tax legislation, and should private sector changes go ahead, agencies and clients must reassess the way in which they make IR35 decisions. After all, Cest is not mandatory and independent assessments are perfectly acceptable.”

Computer Weekly contacted HMRC for a response to Qdos Contractor’s findings and assertions, and was told by a spokesperson that it stands by Cest and the results it produces.

“The Check Employment Status for Tax service was developed in consultation with public authorities, employment agencies, central government procurement specialists, tax specialists and contractors themselves. Results have been tested by HMRC against known case law and settled cases,” the spokesperson said.

“HMRC will stand by the determinations provided by Cest where it has been completed accurately and in accordance with HMRC’s guidance.

“Cest provides a result in 85% of cases. For complex cases where it does not provide a result, HMRC provides detailed guidance and a dedicated helpline staffed by specialists who can give customers advice,” the spokesperson concluded.