Faith lost in HMRC IR35 Tool with only 10% of contractors now using it

Just 10 per cent of contractors are now using HMRC’s much maligned IR35 status tool according to new research.  The figure for those using the tool is down from a height of 28 per cent since the tool and the new legislation came into effect in April 2017.

What’s more, of the 1100 contractors surveyed who said they used the tool, 25 per cent are being given an “IR35 does not apply” result when ContractorCalculator thinks that IR35 should definitely apply.

In addition, it appears that 45 per cent of the “IR35 does not apply” results being handed out by HMRC are based solely on substitution and do not take any other factors into account.  The research found that at least 25 per ent of those given passes by HMRC, and passing substitution, were in fact found to be caught by IR35.

HMRC’s tool was originally called the Employment Status Service (ESS) and was heavily criticsed, then renamed to Check Employment Status for Tax, or “CEST”.

Dave Chaplin, CEO and founder of ContractorCalculator commented: “Substitution is very rare in the contracting market so for HMRC to pass 45 per cent of contractors based solely on substitution without considering other factors is not only contrary to how status is tested in the courts, but also in stark contrast to the reality of the working practices of most contractor engagements.

“The roll out of the IR35 reforms was underpinned by the promises made by HMRC that their CEST tool would provide public sector hirers, agencies and contractors with certainty. But clearly people have now lost faith in the tool.  We know from a survey we conducted in the summer that 61% of contractors have turned their backs on the public sector because they refuse to work under IR35 off-payroll rules and now contractors have turned their backs on using the tool that HMRC built to underpin their IR35 Reforms.

“The damage has been done, chaos has ensued and now the tool is hardly being used.   We would therefore urge HMRC to ditch the reforms altogether and conduct a proper investigation into what has happened.  With the clear evidence building against them HMRC must now surely acknowledge that it is not well positioned to roll out the reforms to the private sector.”