What IR35's digital tool will be called: the ESS
What has been at the centre of the public sector ‘off-payroll’ policy debate for many months -- HMRC’s IR35 digital tool -- is almost here. But not as we know it. It has been re-christened as the Employment Status Service, writes Andy Hallett, partner at SThree.
No doubt in the not too distant future, the service will be abbreviated to just ‘ESS.’ So it will likely become the bug bear of anyone running a SAP environment with ‘Employee Self Service!’ Another reason contractors may come to dislike it.
What the ESS is (and isn’t)
These PSC workers are all too aware that the aim of the tool -- sorry, the ESS -- is to support determining whether assignments fall inside or outside the scope of IR35 in HMRC’s view. There has been concern that while HMRC’s consultation promised a tool based on case law, the tool’s developers have been told to build something based on HMRC’s interpretation of IR35. However, from meeting the ESS team last month, it’s clear that a number of the 55 questions which the tool is looking to ask will be based around case law. The department was also unequivocal that it would stand behind any result produced by the ESS, as long as it wasn’t fraudulently inputted.
In this sense, it’s clear to see what HMRC means when it says the methodology they’ve used to build the ESS puts ‘the user at the centre.’ The cynic in me is not so sure. No less than 33 interviews and 22 testing sessions does not compute with this claim. Only time will tell.
ESS: Testing, testing...
The development of the ESS is mapped into 5 key stages:
2. Alpha (Prototype)
3. Private Beta
4. Public Beta
The version that HMRC showed me last month was of an Alpha prototype. Anyone who self-assesses their tax online will be very familiar with the ‘look and feel’ of the application. The health warning attached by our HMRC presenters was that the question-set was linear, meaning it didn’t follow the intended decision ‘tree’ and also that the algorithm (matrix of matrices) to decide the result wasn’t present. So any result was for test purposes only. Even with these constraints, I was still able to get a decent feel for the ‘service’.
What the ESS will ask (and in what order)
Firstly, the ESS starts deciding who you are; an engager, agency or worker.
It then asks you whether the assignment has started or is due to start (this is relevant later).
The next step takes you through the same question-sets but the language is relevant to the audience. The questions centre on the key areas you would expect -- Supervision, Direction, Control, for example, and ‘business setup.’
Outcomes of the ESS
Your answers are finally all rolled up to give a decision of:
- Inside IR35; or
- Outside IR35; or
- Seek Further Guidance.
Reassuringly for those who suspect the ESS is nothing more than a loaded dice, there is only one question which automatically rules an assignment as inside IR35, and that is around being an officer of the client.
It will also be pleasing to contractors and PSCs using it that ESS is an anonymous service. Once the IR35 decision has been made however, you can download or print it as a PDF as proof. My suggestion to HMRC that the result should also be directly email-able is both practical and environmentally-friendly. It would also give everyone surety that it’s not been Photoshopped!
ESS: Once to assess, twice to validate?
Based on what I’ve seen of the ESS, I expect that the service will have to be used twice -- firstly to assess the assignment, and then secondly to validate the assignment in respect of that worker’s business setup. It won’t be enough that the role be outside IR35, because the worker must also operate their affairs in a manner outside the legislation.
I also learnt from my HMRC meeting that the ESS won’t be the finished article (Stage 5, above) until March. That should concern everyone, given that these significant changes will be enforced from April, the following month. Implementing the changes for many agencies and end-clients is going to be tough as it is, but this start date is cutting it too fine. They may be slightly reassured that IR35 advisers regularly in touch with the Revenue now describe the launch of the ESS, in some form at least, as imminent.
Editor’s Note: The views expressed in this article are those of the author, Andy Hallett. They do not necessarily reflect the views of SThree Partnership LLP.