ESI could be used for IR35
The recently published Minutes of the IR35 Forum’s last meeting held on 24th July reveal that HMRC are keen for contractors to be able to assess their employment status by way of the Employment Status Indicator (ESI) tool.
ESI tool determines status by ascribing a score of high, medium or low to:
- Substitution
- Control
- Financial risk
It relies on the accuracy of the information being input by the user and the result is not legally binding although HMRC will abide by the outcome if the information has been entered accurately and the results are printed and retained as evidence.
The tool can be useful for those in the construction industry and employers generally but cannot be used for determining the status of:
- Directors and company office holders
- IR35 cases
- Agency workers
That could be about to change however as HMRC indicated to the IR35 Forum that they want to make the tool more widely available and there maybe a need to do that if the Business Entity Tests are scrapped.
IR35 Review
We should not have much longer to wait now for HMRC’s published report of the IR35 review which is set to contain a number of recommendations. However, HMRC has warned that their ability to implement the recommendations will be dependant upon a number of factors, including whether any proposal is in keeping with the department’s general processes. The department will explain why any recommendation is impractical.
The Cost of IR35
HMRC will aim to produce an assessment of the average administrative burden of IR35 and invited Forum members to suggest factors that could contribute towards an effective calculation.
Business Entity Tests (BET’s)
According to the Forum, BET’s are little known about or used but at the same time are being misused and because of these failings it was suggested that the tests be scrapped.
Contractors working in the public sector, in particular, have impracticable demands placed upon them by government departments who seek to comply with Treasury and Cabinet Office guidelines.
Should BET’s be withdrawn, then HMRC acknowledged that it will be necessary to provide targeted information to all Government Departments.
IR35 Statistics
Annual IR35 statistics will be published each April by HMRC, via the IR35 Forum, relating to the preceding tax year and will include:
- Number of new enquiries in the year;
- Number of enquiries settled in the year;
- Number of enquiries won by contractors in the year;
- Total yield from cases where IR35 is successfully applied in the year; and
- Average time taken to settle cases in the year
Furthermore, the number of employers filing an RTI end of year return and who have answered the service company question, will be made known. In the meantime the Revenue have told us about those contractors who, in the past, voluntarily conceded to IR35:
| Y/E 5th April | No. of P35 returns | Answered yes to ‘Are you a service company?’ (nearest ‘000) |
Operating IR35 or MSC (nearest ‘000) |
|---|---|---|---|
| 2008 | 1.8m | 72,000 | 29,000 |
| 2009 | 1.7m | 84,000 | 10,000 |
| 2010 | 1.7m | 97,000 | 10,000 |
| 2011 | 1.8m | 107,000 | 10,000 |
| 2012 | 1.9m | 120,000 | 12,000 |
Answered yes to the p35 question, or declared themselves inside IR35? As those are 2 different things, surely ? Out of a pool of how many contractor PSCs?
Why provide the figures to the nearest 1000?
Surely the exact numbers are known and so should be given.
Otherwise a deduction is that these are simply estimates to placate the Freedom of Information Act requester. The ‘Operating…’ column looks very much like 10% of the ‘Answered…’ column, except for 2008. 2008 was probably the first time that the question was posed on the form and was, from memory, ambiguously worded so the response was probably unreliable.
Can the method of arriving at the figures be made available?
Concerning the question wording…
I would have thought that all companies provide a service, however negligible it might be. If the service is not of sufficient quality then its customers could go elsewhere and so the company may become insolvent.