Public Services > Central Government

HMRC hits back over accuracy of its IR35 tool

David Bicknell Published 01 June 2017

Department rubbishes claims that its updated tool is not fit for purpose, saying argument is “completely incorrect”

 

HM Revenue & Customs (HMRC) has dismissed a suggestion that it needs to go back to the drawing board over its IR35 Employment Status Tool.

It follows a claim from Dave Chaplin, chief executive of online contracting portal ContractorCalculator, that HMRC’s updated IR35 Tool is still not fit for purpose.

ContractorCalculator said it has re-run the 21 historic IR35 test cases through the newly adapted tool to ascertain any changes to the initial results. It said it had discovered that HMRC’s first public beta version could not determine status for 27% of the 21 court cases.  With the new adaptations this number has increased to 38%.

It added that:

  • There is still one case which HMRC claims that IR35 does not apply to which, in court, the judge decided IR35 certainly did apply.
  • The Larkstar case was fixed from giving a pass instead of a fail but now it gives “Unable to Determine Status”.
  • Examining the 10 cases the tool correctly concluded that IR35 does not apply to, 8 of those pass using the HMRC tool based on the flawed approach of only testing for substitution rather than assessing the whole picture.
  • For 2 out of the 10 substitution-pass cases, if these had not been passed solely on substitution then HMRC’s result would have declared “Unable to Determine Status”.

ContractorCalculator claimed that from looking at a copy of the blueprints of HMRC’s tool, the tool’s so-called ‘inner workings’ “reinforce” why the HMRC tool is handing out what ContractorCalculator called “spurious results”.

Chaplin said, “HMRC has developed an extremely basic algorithm which is not based on how case law judgements are made.   The foundations of how to judge cases was laid down by Justice Nolan in the Hall versus Lorimer case 1993, which stated that all factors should be taken into account and a stand back approach used by examining the picture as a whole.  But when we looked under the bonnet of the tool, this isn’t how it works at all.

“Instead, it asks a limited number of questions across four consecutive sections, and the user gets the chance to be handed an “IR35 pass ticket” in each section. If they get one, they do not move onto any further sections, no further questions are asked, and no big picture evaluation is made that can result in a pass status.

“If no pass ticket is handed out then after the fourth section the user is either told that “IR35 applies” or that they are “Unable to determine status”. It’s not how judgements are made, and for HMRC to suggest they will stand by the results of the tool is tantamount of an attempt to rewrite case law.

“We have repeatedly warned HMRC that a robust online test could not be developed within such a short timeframe and now we are seeing the whole thing unravelling.  We invested seven years into the development of our IR35 test which, for the record, accurately predicts the correct result of all 21 court cases.   Sorry HMRC, but despite these amendments it’s back to the drawing board.”

The claims, however, drew short shrift from HMRC. An HMRC spokesperson said, “This claim is completely incorrect. 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.”

 

 








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