HMRC confirms 'IR35-specific ESI tool'

The taxman has a plan to launch an online Employment Status Indicator to test contractors’ IR35 status, as predicted to ContractorUK back in November.                   

Speaking at the December IR35 Forum, HM Revenue & Customs said its aim was to have a beta version of an “IR35 specific ESI tool” by “spring 2016”.

HMRC’s Mark Frampton also told the forum that the hope is for the tool to provide “clearances” on status, much as the Contract Review Service is meant to now, to a “mass” of contractors.

But the Revenue wants the tool to be “more accessible than the CRS,” though forum members say the “biggest challenge” will be “getting round the trust [issue] of [the] tool”

The minutes from the forum’s meeting add: “Questions are being reviewed to create meaningful questions for users… and getting the wording right [will be important].”

And it will be “very important” to be transparent on what’s asked, the forum’s non- HMRC members said, so the key questions “HMRC are putting into” the tool will be agreed first.

What has not been agreed first (- at least this is the suggestion put to the forum) is how the tool fits with any future statutory amends to IR35 -- a rule the government is still “interested in”.

In fact, asked at the meeting “whether the ESI would be adaptable to work for any further legislative change” to IR35, HMRC said it “would depend on what ministers decide”.

This implied state of flux on IR35 is at odds with the ‘cut and dried’ IR35 policy that has been outlined by the source who knew of the IR35-specific ESI tool back in November.

Then, the source said an ESI would be IR35-specific; be online and be able to offer ‘inside/outside’ outcomes (as HMRC has now confirmed). But the source also says it is going to include ‘Supervision, Direction or Control.’ 

“People with their own PSC will… have to supply the result from a new ESI test, which I’m absolutely certain is going to be revamped to include SDC,” said the source, a former tax official.

“PSCs will then use the ESI test result [if it’s an 'outside' IR35 outcome] as proof that they can continue contracting as a PSC, assuming they’re not a Managed Service Company.”

Under the system that the source envisions, HMRC would “record the individual reference numbers of ‘IR35-caught‘ responses that the revamped ESI throws out.”  

Speaking in November, the person added: “The current ESI doesn’t track personal details so the onus is going to be on engagers to ensure they have the reference numbers of their PSCs.

“In this way, clients will have to verify that their PSCs don’t have to operate IR35.” The ex-tax officer expects verification to be run before a PSC enters their contract’s second month.

Dubbed the ‘one-month cap on contracting’ following a report of the plan by The Guardian, HMRC told the forum it was “unable to comment on press speculation”.

The department added: “[Our] objective remains to find a solution that protects the Exchequer and improves fairness in the system without creating disproportionate burdens on business, or widening the scope of the rules.”

Seeming unaware of the reference numbering system foreseen by the ex-tax officer, IR35 forum members told the Revenue that for users of the ESI-IR35 tool, “anonymity would be welcomed.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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