Claims that Employment Status tool cannot accurately determine whether contractors are liable under new IR35 tax rules.
HMRC rejects claims that its online contractor status tool is unreliable Credit: Flickr
HMRC’s online tool to determine contractor employee status is still unfit for purpose, despite recent improvements, according to an expert.
The HMRC Employment Status tool was launched alongside tighter rules governing the IR35 tax status of freelance and contracting staff, introduced in April.
But Dave Chaplin, chief executive of online information portal ContractorCalculator, said that, despite recent attempts to improve results, HMRC needs to go back to the drawing board.
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He 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.”
ContractorCalculator has re-run the 21 historic IR35 test cases through the newly adapted tool and found that the number of cases for which the tool could not determine status has increased from 27% to 38%.
Chaplin said: “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.”
However, HMRC rejected ContractorCalculator’s criticisms. In a statement, it said: “We do not oblige anyone to use the tool, but we stand by its results where correct information has been input in line with the guidance.
“If incorrect information is input, the results will be skewed, but that has nothing to do with the reliability of the tool.”