HMRC’s long-awaited employment status test has gone live, just over a month before the new public sector IR35 rules take effect.
What will the online IR35 test be used for?
The online Employment Status Service (ESS) test aims to establish whether a worker “on a specific engagement, should be classed as employed or self-employed for tax purposes.”
The new tool can be used to determine employment status for contractors in the public or private sector, and HMRC states that it will stand by the result of any test, “unless a compliance check finds the information provided isn’t accurate.”
What information do you need to complete the test?
According to the guidance notes, you will need the following details to hand before taking the test:
- 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
You will then be asked a series of questions relating to the working practices of the applicant. The options change according to the information you provide during the test.
These questions cover familiar IR35 territory, for example: can you provide a substitute, and if so, have you ever supplied one? And… how much control do you have over the work you perform?
What types of outcome are there?
If you pass the test, you will see the reassuring words “The intermediaries legislation does not apply to this engagement.”
You can print the results and customise the summary for your records, although HMRC won’t keep a record of the test. You will be advised to pay tax as a ‘self-employed’ person.
If you fail the test, you’ll be told: “The intermediaries legislation applies to this engagement.”
You are then told to pay taxes as an ’employee’. If you’re a public sector contractor, you’re then told how deductions should be made for income tax and National Insurance.
If the online test is unable to provide a ‘yes’ or ‘no’ answer, it will state: “Unable to determine the tax status of this engagement,” and direct you to further HMRC guidance.
What about the Business Entity Tests?
Followers of IR35 will remember that HMRC published its Business Entity Tests in 2012. The BETs, which consisted of 12 questions to help determine the employment status of workers, were widely condemned by almost everyone who came into contact with them. Almost all who completed the test were found to be at risk from an IR35 investigation.
As a result, having admitted that the BETs had been ‘used very little’, and hadn’t fulfilled their intended purpose, they were withdrawn in April 2015.
Will the new IR35 test fare any better?
This test, like its predecessor, raises some serious questions.
The main problem with this type of test is how it can possibly replicate the nature of ‘real world’ working practices into a simple digital form.
The Intermediaries Legislation, and the case law which has been published in its wake is highly complex, so how can an online tool take into account the ‘overall picture’ of a worker’s working arrangements and produce a simple ‘pass’ or ‘fail’ answer?
And given the lack of confidence in the tool which already exists throughout the industry, how can agencies, clients or contractors be sure that a ‘pass’ will be binding?
With just over a month to go before the new public sector IR35 rules come into play, we look forward to seeing test users’ feedback with great interest.
And, from our initial testing, the online tool appears not to work in Firefox – and returns “Bad CSRF token found in query String” after Question 1!
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