Less than a week after its release, HMRC’s IR35 tool has faced immediate difficulties as one industry body deems the ESS ‘unlawful’.

Lawyers from The Association of Recruitment Consultancies (ARC) have formally written to HMRC asking for a review of the tool to be carried out and for a detailed review of the reforms in the public sector as a whole before they are implemented.

“Use of an online tool has always been claimed by HMRC as fundamental to the success of its new policy to require public sector hirers and agencies to assess IR35 and, where it applies, pay taxes on a PAYE basis,” said Adrian Marlowe, chairman of ARC.

The ARC’s public law specialist lawyers Bindmans have compiled and sent a letter to HMRC that says that reforms while ‘the online tool remains flawed’, would, ‘in the ways set out’, either  be ‘unlawful or lead to unlawfulness’.

The tool faced problems from the off, with a series of delays preventing it coming to light as originally scheduled. Concerns were also raised about how effective and accurate it would be, with many industry experts voicing their concerns.

“The process of consultation in respect of the use of an online tool has been deeply worrying,” Marlowe explained. “From the outset we have expressed concerns, as have many others, as to how the tool could work legally in practice given that HMRC says that it will stand by the result.

“The tool was always likely to be set up on a check list basis, a methodology repeatedly ruled by the courts as the wrong approach. With few checks and balances in place over the programming of the tool, amongst other things, there is a real risk of unfair prejudice.”

With this week’s budget now imminent, the government’s official stance has been that it is still developing the tool (though it is now live), and that it may change the draft legislation.

“With no clear and final position in sight, the government appears determined to make hirers and agencies liable and use the tool regardless of the concerns,” said Marlowe. “The fact that there should be IR35 reform is in no doubt, but the method used should not bring about the unlawfulness and problems that seem very apparent, as advised by our lawyers Bindmans.”

The ARC has also set up a fighting fund around this issue, with the aim of addressing government policy in this sector. Interested parties are being encouraged to contact ARC on [email protected]

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