The Employment Status Service (ESS) got launched fairly recently (2 March), it has been making headlines for a long time. According to Martyn Valentine of The Law Place, the taxman’s tool is full of flaws, and presents serious risks to both the contractor community and agencies.
The ESS tool doesn’t go into much detail to be able to be counted as an equivalent of a legal advice. It’s a simple Q/A tool that is certainly not adept at making decisions to suit varied circumstances.
The ESS uses the checklist approach for assessing the employment. Did you know that this method has been rejected a lot of times by the law courts?
Oh, and in a lot of instances, the decisions made in the historical legal cases DO NOT match the outcomes presented by the ESS tool, leaving the contractors in a fix! This means that the results are inconsistent with the case law.
Once the contractor takes the test, he or she can get an “undecided” result - which means the person will have to then contact HMRC for further assistance. Ugh! The stress levels will only soar when the cases are picked up by the court, and only in such circumstances will the contractors get a definite 100% answer!
Remember if a contractor doesn’t have the right to send a substitute to work despite having control on how the work is done, the IR35 tool will most certainly hold such a contract to fall inside IR35; but if the contractor is unwillingly “unable” to work, then that becomes a case of “genuine substitution” and the tool would suggest an “outside IR35” result?
Quite interestingly, the tool may give a green flag to those arrangements, which under a proper examination would fail! This means avoiding taxes is possible even after being tested by the ESS. Similarly, it puts agencies and clients at a risk of incurring liability.
Wait - this doesn’t end here. If the courts finds that the result provided by the tool is wrong, then the ESS will have to be reprogrammed and all the decisions taken by the tool will become invalid. This means it has no legal authority whatsoever.
The HMRC currently states that it completely agrees with the outcomes provided by the ESS. However, it can change this policy anytime, thereby leaving those who relied on the tool earlier in a fix!
The HMRC can make changes to the programming of the ESS, whenever it deems fit, without any justification or prior warning.
The draft legislation, as published in December, have kept no provision for an appeal against the public sector bodies to rightfully determine the IR35 status. This means that there is no provision of appeal for the outcome of the test.
Although contractors and agencies can question it, the real issue is to what extent?