Contractors criticise HMRC's IR35 status tool as 'unachievable'

HMRC will struggle to achieve April 2017 deadline, claims ContractorCalculator founder Dave Chaplin

HMRC has been criticised over its attempts to develop a comprehensive online IR35 test that would enable contractors to work out whether the tax status applies to them.

Dave Chaplin, CEO of ContractorCalculator, a consultancy set up to help contractors in their dealings with the taxman, said HMRC is promising the unachievable. He suggests that IR35 has become so complex that it will defy such a simple test, and that any tool HMRC develops will end up classifying contractors under IR35 when they should not be.

"As HMRC progresses with its plans to reform IR35 in the public sector, contractors are yet to see anything materialise from the taxman's attempt to create an online test tool that it claims will provide 'upfront certainty' over the employment status of the user," said Chaplin.

"It's a naïve attempt to achieve the impossible. Building a simple online tool cannot be done due to the inherent complexity.

"The finest legal minds in the past 17 years haven't been able to boil down decades of employment case law into an IR35 questionnaire that provides a binary result. How HMRC is going to achieve this in time for April 2017 is anybody's guess. If it were possible, it would already have been done by now."

Chaplin founded ContractorCalculator shortly after the introduction of IR35 in 1999 and has almost two decades of experience with the legislation and relevant employment case law. He claims that the online IR35 tool he built to help contractors took a year to develop, and needs to be refined all the time due to the complexity of UK tax law.

"Nobody else has managed to build an IR35 tool of equal complexity that aligns with case law. But because the answers are subjective, the outcome has to be presented on a spectrum. As a result, roughly half of users are deemed to be borderline with an inconclusive result," said Chaplin.

"Having spoken to personnel at HMRC who have made it clear that the taxman doesn't like the idea of some people perhaps 'getting away with it', the likelihood is that those who are hovering anywhere between certain pass and fail will automatically be deemed within IR35, an approach that will quickly be challenged by experts rendering the tool both inaccurate and redundant."

After the May 2010 election, the incoming government had promised to abolish IR35 on the recommendation of the Office for Tax Simplification. However, this promise was never kept.

Indeed, in the run-up to the last Budget, several leaks suggested that the government was planning a renewed crackdown on contractors' tax, although only the promise of an IR35 compliance tool eventually emerged.

In 2013, HMRC's Mike Hainey, head of the risk and intelligence service data analytics team at HMRC, spoke to Computing about the organisation's increasing use of big data analytics to identify fraud and underpayment.