One year ago, HMRC invited a number of people to act as beta testers for its new Employment Status Service (ESS) tool.
These testers included Scott Campbell of chartered accountants and business advisers PKF Francis Clark. He was given six weeks to understand the tool, undertake adequate testing, and give feedback on it to HMRC.
Campbell has this week blogged about the tool a year on from that request from HMRC. In his blog he provides a reflection on how ESS has developed in that time.
“Increasingly, we see new tax legislation rushed in under tight timetables, leaving limited time for consultation with the individuals, businesses and advisors that are impacted by the changes,” he says. “This was certainly true with the introduction of the public sector IR35 rules and my testing of the ESS tool. I was given access in mid-January 2017 and the tool went live in March 2017.”
Campbell says that this is a rushed approach. It has left little time for HMRC to digest the beta testers feedback and pass this onto the tool’s developers. Further, it has had a negative impact and ultimately resulted in a tool that unfortunately is not fit for purpose.
Campbell gives an example of 20 NHS radiologists taking up additional work on a voluntary basis to meet increasing workloads. This work had been outsourced by the NHS, with the radiologists were under no obligation to do the work. One worker wanted to be employed as a limited company to carry out this work. By doing so he ‘believed he should be outside of the scope of the new public sector IR35 rules’.
However, here is where it gets interesting. The ESS tool actually agreed that he was outside IR35, this being despite answering questions within the ESS that are ostensibly to the contrary of this. The full set of questions and answers run through the ESS tool is available here.
Same but different
“This ‘engagement’ is nothing more than an employee performing ‘overtime’ under their existing employment,” writes Campbell. “Furthermore, 20 of the individual’s colleagues were doing the exact same role under the same terms and conditions and were receiving their income for the work as overtime payments as part of their employment. How could such an engagement ever be considered outside of IR35?”
Campbell says that HMRC is looking to scrutinise scenarios where the worker ‘is performing work similar to other employees in the organisation, or where an individual has recently left an employment with the employer and returned as an independent contractor.’
Against all logic
But as Campbell rightly says, in this instance the scenario even goes one step further than an employee leaving and returning, or a contractor performing a task similar to that of an employee.
“The individual is performing the same duties concurrently as both an employee and contractor,” he says. “The ESS result quite clearly goes against all logic, best practice, HMRC’s own guidance and indeed case law used to consider employment status.”
Such errors are a major problem for HMRC. Campbell therefore believes speaking with industry bodies and authorities would be particularly helpful. This would allow HMRC to better avoid inaccuracies, inconsistencies and mistakes moving forwards.
“This case study is just one issue, with one supporting tool, for one piece of legislation,” he concludes. “Surely better dialog from the outset with the profession and stakeholders would make new legislation and the tax system work better for taxpayers and HMRC alike.”
In conclusion, the above goes to show how fatally flawed the ESS tool is, leaving us all scratching our head! And lets not forget that the ESS tool doesn't even consider MOO!
If you have any questions as contractor with regards to IR35 or HMRC, Larsen Howie is here to help. Get in touch today.