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IR35 Status Tool Dispute Highlights Ongoing Confusion

One of the more surprising criticisms of HMRC’s tool for testing contractors’ IR35 status is that it might be passing people who should in fact fail.

Recruiter magazine reported findings from Contractor Calculator (which has created its own IR35 status tool) which showed that 29% of contractors passing IR35, when using HMRC’s tool, actually fail when using Contractor Calculator’s, with most of these (19%) very strong fails.

HMRC has sent a statement to Recruiter dismissing these results as “completely incorrect”, but they should represent a pleasant surprise for contractors nonetheless.

Many predicted that HMRC’s Employment Status Service tool would be created with the intention of trapping as many contractors within IR35 as possible. Instead, Contractor Calculator claims just 3% of contractors failed by HMRC should in fact pass.

HMRC has previously said that it will accept the results of its own tool for determining IR35 status, presuming contractors have inputted information about their assignments correctly.

In theory then, contractors who have been passed by the HMRC tool are outside IR35 and there is no risk to recruiters and public sector bodies that recognise their status as such.

However, what this dispute underlines is that determining IR35 status correctly is hugely complicated – and most likely beyond the capacity of an online tool.

Some have estimated that it takes a 15-minute discussion with an expert to correctly determine a contractor’s status, which is why we anticipated that many public sector bodies would be forced to make blanket decisions about contractors operating through their own personal service company.

Because we know that expert insight is invaluable, we’re offering a totally free 10-minute consultation to any contractors concerned about their IR35 status ahead of taking on a new assignment this tax year. We can look at your likely status and discuss ways you can get the most out of contracting.

If you would like to arrange a consultation, do get in touch with us. You can also download our comprehensive guide to the IR35 reforms here.