IR35: Will HMRC Tweak The Employment Status Tool?

Workers who provide their services through their own personal service company will be well aware of IR35 tax rules. These seek to tax such arrangements as if the worker had been PAYE employed directly by the end client, if the IR35 test adjudges them to be a ‘deemed employee’ of that client.

Helpfully, HMRC introduced their online Employment Status Indicator tool in 2007, to add some objectivity to this assessment: https://www.gov.uk/guidance/check-employment-status-for-tax

As well as giving ‘Yes’ or ‘No’ answers, this tool can also give an ‘Unable to Determine’ answer. So it is not always as helpful as it appears. Because of this, and to introduce another batch of general improvements (presumably including collecting more tax), HMRC have just started a consultation exercise to consider what changes could be made.

Potential changes being considered include:

• Diluting the effect on the results of a contract having a worker substitution clause.
• Reversing the current default position, which assumes a worker is self-employed unless evidence suggests that they are employed.

Employment status is a very old tax chestnut. Ironically, as dividend and corporation tax rates have continually increased, the tax savings arising from self-employed status have actually now diminished.