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IR35: Employment Status Indicator

HMRC confirms ESI tool for contractors

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In a previous article I suggested that IR35 was heading towards an Employment Status Indicator (ESI) tool as a way of improving and reforming it and, following the last meeting of the IR35 Forum, this does indeed seem to be the case.

The Minutes of the IR35 Forum’s meeting of 15th December 2015 have recently been published and in them HMRC confirm that they have plans to have an IR35 specific ESI tool which will act as an online tool for people remotely. In a bid to increase the number of contractors HMRC can reach, support and provide certainty to there will be:

  • A mass market approach where users will receive a quick response based on a set of circumstances.
  • Scope to amend and vary the tool to cater for particular groups.
  • Testing on real contracts and build with stakeholders, including the Forum.
  • An aim to have a beta version ready for testing for spring 2016.
  • Reviewing of questions so as to create meaningful questions for users.

Some Forum members believe that the biggest challenge is getting people to trust the tool. Currently the ESI is only available to the likes of employers and main contractors in the construction industry, although individual workers can also use the tool to check their own employment status. It works by asking the user a series of questions about the working relationship between worker and engager. Once all of the questions have been answered the ESI tool provides an indication of the worker’s employment status which can be relied upon as evidence provided the answers to the questions accurately reflect the terms and conditions under which the worker provides their services.

The ESI tool is completely anonymous, so no personal details about the worker or engager are requested and it appears that the IR35 Forum would like to keep it that way. This would be important in building confidence and trust in the tool as it would be eyed with suspicion if personal information had to be revealed. Contractors would, quite rightly believe, that by having to provide their names, company and end client names etc, would leave them susceptible to an unwanted IR35 enquiry.

Having been an advocator of the use of this tool within the contracting industry, provided the questions are pitched correctly, I believe it will provide freelancers with a degree of certainty in establishing their IR35 status. Even more so, if their end client can be persuaded to participate too.

IR35 discussion document

HMRC confirmed that the government is considering the responses to the IR35 discussion document of July 2015 and therefore draft legislation for this year’s Finance Bill had not been published.

Forum members expressed their concern about reported leaks concerning the fate of IR35 shortly before the Autumn Statements, which led the Guardian and Daily Mail to report that government ministers were considering forcing contractors who work for a client for more than a month, onto the books. HMRC responded by saying that they were unable to comment on press speculation. So why didn’t they put everyone’s mind at rest by issuing a press release quashing those rumours, if indeed that is what they were?

IR35 Helpline and Contract Review Service (CRS)

HMRC provided the latest statistics on the use of their IR35 Helpline and CRS. Since April 2015, 600 callers contacted the helpline with nearly 100% having their queries dealt with within a couple of days.

The Revenue will continue to provide these two services until the new ESI tool is developed and bedded in.

If HMRC get this right, and I know it’s a big if, then the ESI could be a big stride in improving IR35. Not only would it be quick but if the results could be relied upon then it has the potential to reduce any enquiry time or indeed head it off.

By Qdos Contractor


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4 thoughts on “IR35: Employment Status Indicator”

  1. Benji

    Is this good or bad?

    Plus,I wonder if the beta will be developed by Freelancers on behalf of HMRC? :p

  2. SH

    At the end of the day why are they still bothering with IR35 as the recent changes in dividend tax have virtually eliminated most of the tax benefits of establishing a limited company while all the costs remain the same.

  3. C

    The real issue about IR35 s how it affects those ‘inside’ it.

    When someone is asked to pay the same income tax as other people, then also pay employees NI AND employers NI, that is a problem that needs to be fixed.

    There can be times when it’s reasonable, but only in a case where there is genuine abuse, for example the ‘agency worker’ where an agency supply people into a factory to work on a production line.

    There is a case to say that they are employees of… someone, in that if they worked directly for the client then ER NI would be due, but…

    And it’s a big but…it would be due from the client. Therefore if the agency are running the remuneration scheme, then the ER NI should come from the agency not the worker.

    Essentially, either the agency or the end client should be paying the ER NI in an ‘inside IR35’ case.

    The worker should never be paying all these taxes, however you package it (forcing him to have a Ltd Co and then calling it the employer is just plain wrong).

    In the end, the risk of the work ending without rights is enough to make these people self-employed and that should be recognised.

    And someone needs to show the courage to reform an ancient tax system not fir for the 21st century – why is employment taxed so much more heavily than other ways of working???

    It should simply be a one-tax-fits-all (ways of working) world.

    Bottom line: no matter how much ‘certainty’ the ESI brings, it will be a travesty of justice for those who are certain of being inside a tax that is so unfair as to beggar belief. The biggest problem in repealing it is to get people to (a) understand why it’s wrong and (b) care.

    Inside IR35 = UNFAIR. And no ESI will change that.

  4. C

    It’s a very poor show when the owner of this site vets every post and decides which he wants to post.

    I’ll duck out and unsubscribe.

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