HMRC to launch new tool to test IR35 by spring 2016

HM Revenue and Customs (HMRC) has announced plans to introduce an online Employment Status Indicator (ESI) to test contractors’ IR35 status.

When speaking at the December IR35 Forum, HMRC said it hoped to have a beta version of an “IR35 specific ESI tool” by “spring 2016”.

Mark Frampton, of HMRC, told the forum that the aspiration for the tool is to provide “clearances” on status, in the same way the Contract Review Service is meant to now, to a “mass” of UK contractors.

The tax authority hopes the new tool will be “more accessible than the CRS”. However, members at the IR35 Forum said the real acid test for HMRC would be “getting round the trust [issue] of [the] tool.”

The forum’s non-HMRC members admitted it was “very important” that HMRC acted with transparency regarding what’s asked within the tool.

What has not yet been agreed is how the tool fits with any future statutory changes to IR35 itself; a rule that the Government remains interested in.

At the meeting it was asked “whether the ESI would be adaptable to work for any further legislative change” to IR35, to which HMRC responded by saying “it would depend on what ministers decide”.

HMRC also intimated that, regardless of possible changes, the new ESI tool will be specific to IR35, will be available online and will include Supervision, Direction or Control tests.

A former HMRC official said: “People with their own PSC will have to supply the result from a new ESI test, which I’m absolutely certain is going to be revamped to include SDC.

“PSCs will then use the ESI test result [if it’s an ‘outside’ IR35 outcome] as proof that they can continue contracting as a PSC.”

HMRC said: “[Our] objective remains to find a solution that protects the Exchequer and improves fairness in the system without creating disproportionate burdens on business, or widening the scope of the rules.”

Last updated: 12th February 2016