The Association of Independent Professionals and the Self Employed (IPSE) has intensified its opposition to a planned government rollout of “disastrous” new public sector IR35 rules to the private sector by detailing major shortcomings in HMRC’s online employment status tool. The flaws, IPSE argues, effectively vitiate the instrument.
IPSE’s Director of Policy and External Affairs Andy Chamberlain explains why the Revenue’s Check Employment Status for Tax (CEST) tool is unfit for purposes. His criticisms are shared by many other organisations including the Association of Professional Staffing Companies (APSCo) and the Freelancer and Contractor Services Association (FCSA) — an umbrella company trade association.
There are many reasons for the pervasive lack of faith in the tool, including:
-The rules are too complex to be captured by a simple online tool. The interpretation of IR35 requires a deep familiarity with case law as well as informed, human interpretation of each contract. As Chamberlain puts it: “Any online tool will lack the nuance required to get it right in every instance”.
-HMRC concedes that the tool fails to make determinations in 15% of cases, which it considers an acceptable hit rate. However, for the 15% affected it is of no use whatsoever. These are almost certainly borderline cases much in need of guidance, Chamberlain observes, meaning that the tool “fails to those who need it most”.
-The tool omits any test for Mutuality of Obligation (MOO), which is a central determinant in case law as to whether IR35 applies to a contract. HMRC recently revealed that it omitted this test as obligations are part of all contracts. But for contracting professionals, the degree of MOO is crucial: employees are far more obliged to perform tasks for employers than contractors are for clients. The omission of this test is a critical flaw.
-The person applying the CEST tool may have a biased or inaccurate view about the nature of the engagement. Believing that certain conditions apply doesn’t make that true — some managers mistakenly think that they have control over how the work is done, but the contract’s details may demonstrate that this is entirely inaccurate. There are no means of challenging how the tool has been completed so, inevitably, determinations are reached based on contentious or simply wrong answers.
Chamberlain writes: “The problem will be multiplied many times over if all private sector clients are forced to make IR35 determinations for each of their engagements. As IPSE has long argued, IR35 is a complete nightmare to wrestle with.”
IPSE is urging all contracting professionals and others concerned about the proposed rollout to write to their MPs. A sample letter is available here.