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A first-hand review – will the IR35 online test tool work?


A first-hand review – will the IR35 online test tool work?

Now that the government has confirmed reforming of the offpayroll working rules in the public sector from April 2017, all eyes are set on the online test tool which HMRC would be introducing to establish the IR35 status of the contractors. But the question is how effective this new online tax tool is and how accurately it would determine that a contractor is working according to IR35 rules.

The primary reactions haven’t been much encouraging. Pom Chakravarti, Operations Director of QX Ltd, who was offered a primary trial of the tool says, “We are glad that HMRC gave us a chance to test this trial version of the tool. They have made a great effort to introduce a simplified test but the major challenge for them is to identify key points that determine a worker’s employment status across all professions regardless of what level they are working; which is obviously not easy”.  Similar views have been shared by the chief executive of Freelancer & Contractor Services Association (FCSA) who states, “It is clear that the tool has some way to go before it will be ready for use.” 

Will it work or will it not? 

1. Is it mandatory?
To our surprise, the test is optional. While many of us thought the test is mandatory for every assignment of each payroll worker, HMRC has decided to make it optional which would potentially make it easier for the agency to take a generic approach towards engaging with contractors. Basically, HMRC wants to ease the workload of agencies by reducing the compliance.

2. Who can take the test? 
The closest party to the Personal Service Company (PSC) who is going to make the gross payment into worker’s accounts; which quite likely will be recruitment agencies.

3. Outcome of the test
The test results may vary depending on how questions are perceived and inferred. Questions get slightly tricky as certain words used can be interpreted in different ways resulting in different responses to the same question.

4. No definite result after taking test
On the completion, the test summarises questions and answers but doesn’t conclude whether someone falls inside or outside IR35. HMRC is still working on this aspect.

5. Supporting examples
In certain questions, to help one understand the options better, HMRC has given examples to make it simpler for the respondents.

6. Refined questions
Questions are similar to the business entity test introduced earlier by HMRC. However, this time the questions are more refined and further divided into the sub-questions. HMRC seems to be trying to gain more information about the worker’s employment status.

7. Mutuality of Obligation  
If we take general viewpoint of all questions, it appears they have been designed to understand and identify if there is any Mutuality of Obligation between both the parties or if there is absence of it. We also believe HMRC has taken into consideration previous case laws of Mutuality of Obligation in case of any legal issues that may arise in future. 

8. Final version in February
HMRC is working on permutations and combinations and discussing with industry peers to ensure final version of tool is more efficient and simpler. Final version is most likely to come in February.

Undoubtedly the tool still needs improvement and we’ll all have to wait until 5th of December to hear more on consultation update and the legislation, which is not a good news as an overall timeframe for agencies to gear up for and adopt the changes will be very short.

We recommend all agencies in the public sector prepare themselves for these changes and not wait to sort out at the eleventh hour.




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