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HMRC denies ESS can facilitate tax avoidance

HMRC denies ESS can facilitate tax avoidance

The recently introduced digital tool from HMRC aimed at deciding whether a worker is inside or outside of IR35 has taken a major blow following claims that tax avoidance was possible in some cases due to inefficiencies and errors within the system.

The claims come from Contractor Calculator and are based on differences between HMRC’s tool and a tool of its own creation aimed at doing the same job – namely determining IR35 status.

According to Contractor Calculator, 29% of contractors are told by HMRC that they outside IR35, when Contractor Calculator’s tool finds them inside.

Furthermore, 24% of contractors are told by HMRC that their status is unknown. Contractor Calculator claims that of those unknown status results, around 60% are in fact easy to decide and should be deemed either inside or outside of IR35.

Perhaps most worrying for contractors however is the report that 3% of contractors who HMRC says are inside should in fact be deemed outside.

Commenting on the findings, Contractor Calculator’s CEO Dave Chaplin said that figures show what much of the industry has felt and feared since the tool was first announced.

“The HMRC tool cannot be trusted,” he said. “29% of contractors should be caught by IR35 and HMRC has passed them, therefore inadvertently facilitating tax avoidance.”

This possible level of inadequacy is naturally a worry, but HMRC has been firm in its backing of its controversial and troubled tool.

A statement from the organisation reads: “We do not oblige anyone to use the tool but we stand by its results where correct information has been inputted in line with the guidance. If incorrect information is inputted, the results will be skewed but that has nothing to do with the reliability of the tool.”

Whether HMRC will change its tune if more evidence and pressure falls at its door around the inefficiency and inaccuracy of the ESS remains to be seen, but one senses the wider contractor community will not be backwards in coming forwards if the ESS is not doing the job it should.