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HMRC finally launches the long-awaited IR35 digital tool – Here’s what you must know


HMRC finally launches the long-awaited IR35 digital tool – Here’s what you must know

Late yesterday afternoon, HMRC released the beta version ESS (Employee Status Service) digital tool that allows employers, agencies and public sector bodies to check the employed / self-employed status for specific assignments. You can access the tool here: HMRC ESS

We had reviewed the trial version of the tool in January and felt that it did not do justice to the complexity of scenarios in the field. The recent tool is a refined version; however, the complexity of many of the terms can make it difficult for workers to understand and fill the form on their own. The users are expected to select an answer for the questions and the answer leads to further pre-programmed questions. Here’s what you need to know about the IR35/ ESS digital tool:

1. Who can take the test?
While the liability for the correct payment of taxes falls on the public sector bodies or intermediaries such as recruitment agencies, it was assumed that the test would be directed at the workers. However, at the beginning of the test the user gets to choose his/her role and the test is open to any of the below:
•    worker providing a service
•    person or organisation hiring a worker
•    agency that’s placing a worker

2. What information do I need complete the IR35 status test on the ESS tool?
HMRC requires information around the following five areas to generate the result:
•    the worker’s responsibilities
•    who decides what work needs doing
•    who decides when, where and how the work’s done
•    how the worker will be paid
•    if the engagement includes any benefits or reimbursement for expenses

3. What is the result of the test?
At the end of the test (which can range from just 5-6- questions to 40-50 questions – depending on the answers given and further questions generated), HMRC will say that ‘The intermediaries legislation applies to this engagement’ or ‘The intermediaries legislation does not apply to this engagement.’ In some cases, the ESS tool may fail to reach a conclusion and ask the user to contact HMRC. 

No login is required to take the test and HMRC does not save the results. The user has the option to take a printout and save all the Q&A and the result for the records. HMRC will honour the results from the tool as long as the information entered to get the result was correct. 

4. Is it compulsory to use the tool to determine IR35 status of all temporary workers in the public sector?
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.

5. Explanations to the questions 
IR35 has been and remains a rather complicated topic. As you would expect, several questions in the tool are rather difficult to comprehend. While they may not pose a big problem for lawyers and accountants, an average worker may have a tough task choosing the right option. Thankfully, most of the questions are accompanied by a brief description that make it easier to understand the question. 

6. Expresses HMRC’s viewpoint
One thing remains the same. As HMRC says, ‘This service will give you the view of HM Revenue and Customs (HMRC)’ on whether a particular engagement falls outside or within the scope of the IR35 legislation. The test’s result is just HMRC view and is open to challenge. However, for most public sector agencies and recruitment companies, it is logistically unfeasible to challenge unfavourable rulings. In such cases, the public sector bodies or agencies may choose to rely entirely on the tool.  This makes the results from the ESS tool very important. 

7. What if you disagree with the test results?  
As mentioned above, the tool reaches a conclusion – inside or outside IR35 – on the basis of the answers given to the questions. The questions are quite complex and the answers can differ on the basis of how the questions are perceived and inferred. If you do not agree with the results, or if the tool is unable to give a decisive answer, you can contact HMRC. 

8. Mutuality of Obligation   
As was the case with the first version of the tool, if we take a 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.  

Just 24 working days remain…
With just 24 working days remaining, it is imperative for recruitment agencies to have a plan in place for dealing with the changes forced by the IR35 legislation.

Pom Chakravarti: Call 07870 678 557 or email pom.chakravarti@qxltd.com.  

Kunal Shah: Call 0758 4651087 or email kunal.shah@qxltd.com.

Other important IR35 related questions recruitment agencies must ask:

  1. How will the Apprenticeship Levy impact your recruitment agency? 
  2. Are your clients and contractors aware of all the changes that are happening? 
  3. How  many public sector agency workers will be lost as a result of falling within IR35?
  4. Will contractors ask for higher pay rates to offset the Employer’s NI?
  5. Do you have a plan in place for paying the invoices for work done before April 6?


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