I know there are other threads running on the new tool, sorry for the duplication. This one is not intended for general discussion, but to just list specific problems that HMRC really should fix. If you add to what I've said in the comments, I'll add it to the list, if in my infinite and undying wisdom I think what you say makes sense. Or, if you think what I've said here is wrong I can modify it.
The idea is to have one list that those with an "in" at HMRC can point to and say, "You really should fix that."
I'll break it up into six areas:
Mutuality of Obligation
Case law is clear that if there is no MoO it is not employment or disguised employment. The tool has NO questions on this at all that I've found. Glaring hole, so glaring that I wonder if it is intentional, since many contractors would beat an IR35 case on this point alone -- it's one of the pillars they HAVE to have to prove you are a disguised employee. Why did they not ask questions about this? Fail.
Right of Substitution
First, the tool makes RoS a binary choice between completely unfettered or no RoS at all. A completely unfettered RoS is a silver bullet, and the tool recognises this, but a partially fettered RoS is still a strong indicator of a contract for services and should have significant weighting.
Second, the tool defines RoS so narrowly that clients are unlikely to ever say it exists. The tool implies that there is no RoS if the client can verify a substitute's capabilities, but case law would probably not support that.
Supervision, Direction, Control
The tool seriously underweights this. If there is no SDC, there is no employment, no contract for service. But it is possible to get an "inside IR35" determination even when there is no SDC. I did it with the following answers:
No to substitution and helper.
With that set of answers, there is clearly no SDC at all, but the tool says inside IR35. That's wrong. Ironically they made SDC solely determinative for travel expenses last year, but now won't make its absence determinative for IR35.
It's also silly. Change the answer to "the worker decides how the work is done" and you go from inside to outside. That one question flips it. But both are true in this case -- one set of workers decide because they are allowed to, the other set decide because they are smarter than their clients, and the smart guys end up inside while the dumb ones end up outside. Took a Public Sector Body to dream this up, I guess.
Those are the big three areas in case law, MoO, RoS, and SDC. The absence of MoO or SDC, or the presence of RoS, should automatically rule out IR35. But there are other areas that come into play, and the tool does make an attempt to reflect some of this.
Financial Risk
I've not tested this section much, but it mostly seems pretty good.
The first question's exclusion of equipment your company already owns is deeply flawed. If YourCo has to provide equipment, it has to provide it. Prior ownership is irrelevant to the client and irrelevant to the contractual relationship and working practices. Is there ANY justification for this prior ownership thing in case law, or did someone just pull it out of his backside?
The "other expenses" option on this question should list "insurance," since many contracts require it, but clients may not think of it when using the tool.
Part and Parcel
They are asking some good questions here (line management, benefits, contact with clients), but I've not done any testing to see how the weightings come into play or whether this stuff can move you inside, outside, or to undetermined. If anyone has done any testing on this, feel free to chime in.
Business Entities
Remember back when you could prove you were outside by passing the old BETs? They were worthless for most people because it was based on the kind of business most contractors don't run. But there were some things in there that were compelling evidence, if they applied to you, that you were running a business and not a disguised employee. It included things like business premises, employing other fee earners who are paid via PAYE, lost money through bad debts, etc. Stuff that proves you really are running a business.
This kind of stuff does show up in case law. And HMRC used to tell us it proved someone was outside. Unless they were just blowing smoke and want to admit their enforcement was all wrong in the past, they should have a section now that does the same thing. It's not stuff that should prove someone is inside, but it is stuff that should prove someone is running a real business and should be outside.
Feedback on what I've said or additional problems with the tool welcomed, as I said, I'll modify this list if something needs changed or added.
The idea is to have one list that those with an "in" at HMRC can point to and say, "You really should fix that."
I'll break it up into six areas:
Mutuality of Obligation
Case law is clear that if there is no MoO it is not employment or disguised employment. The tool has NO questions on this at all that I've found. Glaring hole, so glaring that I wonder if it is intentional, since many contractors would beat an IR35 case on this point alone -- it's one of the pillars they HAVE to have to prove you are a disguised employee. Why did they not ask questions about this? Fail.
Right of Substitution
First, the tool makes RoS a binary choice between completely unfettered or no RoS at all. A completely unfettered RoS is a silver bullet, and the tool recognises this, but a partially fettered RoS is still a strong indicator of a contract for services and should have significant weighting.
Second, the tool defines RoS so narrowly that clients are unlikely to ever say it exists. The tool implies that there is no RoS if the client can verify a substitute's capabilities, but case law would probably not support that.
Supervision, Direction, Control
The tool seriously underweights this. If there is no SDC, there is no employment, no contract for service. But it is possible to get an "inside IR35" determination even when there is no SDC. I did it with the following answers:
No to substitution and helper.
No, the end client cannot move the worker to a new task without a new contract.
The end client can't decide how the work is to be done because it's a highly skilled role.
The worker decides their own schedule, and where they work.
The worker doesn't buy anything, is paid hourly, is paid for putting things right, receives no benefits, is not a line manager, and does not interact with the client's clients.The end client can't decide how the work is to be done because it's a highly skilled role.
The worker decides their own schedule, and where they work.
With that set of answers, there is clearly no SDC at all, but the tool says inside IR35. That's wrong. Ironically they made SDC solely determinative for travel expenses last year, but now won't make its absence determinative for IR35.
It's also silly. Change the answer to "the worker decides how the work is done" and you go from inside to outside. That one question flips it. But both are true in this case -- one set of workers decide because they are allowed to, the other set decide because they are smarter than their clients, and the smart guys end up inside while the dumb ones end up outside. Took a Public Sector Body to dream this up, I guess.
Those are the big three areas in case law, MoO, RoS, and SDC. The absence of MoO or SDC, or the presence of RoS, should automatically rule out IR35. But there are other areas that come into play, and the tool does make an attempt to reflect some of this.
Financial Risk
I've not tested this section much, but it mostly seems pretty good.
The first question's exclusion of equipment your company already owns is deeply flawed. If YourCo has to provide equipment, it has to provide it. Prior ownership is irrelevant to the client and irrelevant to the contractual relationship and working practices. Is there ANY justification for this prior ownership thing in case law, or did someone just pull it out of his backside?
The "other expenses" option on this question should list "insurance," since many contracts require it, but clients may not think of it when using the tool.
Part and Parcel
They are asking some good questions here (line management, benefits, contact with clients), but I've not done any testing to see how the weightings come into play or whether this stuff can move you inside, outside, or to undetermined. If anyone has done any testing on this, feel free to chime in.
Business Entities
Remember back when you could prove you were outside by passing the old BETs? They were worthless for most people because it was based on the kind of business most contractors don't run. But there were some things in there that were compelling evidence, if they applied to you, that you were running a business and not a disguised employee. It included things like business premises, employing other fee earners who are paid via PAYE, lost money through bad debts, etc. Stuff that proves you really are running a business.
This kind of stuff does show up in case law. And HMRC used to tell us it proved someone was outside. Unless they were just blowing smoke and want to admit their enforcement was all wrong in the past, they should have a section now that does the same thing. It's not stuff that should prove someone is inside, but it is stuff that should prove someone is running a real business and should be outside.
Feedback on what I've said or additional problems with the tool welcomed, as I said, I'll modify this list if something needs changed or added.
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