The HMRC has released its new IR35 tool which was built to specifically determine the IR35 status of public sector contractors.

The tool is completely anonymous as there will be no record of who has used the tool.

However, contractor tax advisor, Qdos Contractor, has raised concerns over HMRC’s Employment Status Service Tool.

“On 6 April public sector companies will be handed responsibility for setting the IR35 status of contractors they engage, a move which could see contractors caught wrongly inside IR35, and recruitment agencies then liable for any missing tax,” Qdos said in a statement.

“Qdos Contractor has questioned the accuracy of the tool, particularly around the definition of genuine substitution, along with highlighting the long-term impact it may have on contracting and hiring.  The tax advisor has stated that it has tested and run different scenarios through the tool,” Qdos said.

“From a first examination, this test is largely reliant on substitution,” Seb Maley, Qdos Contractor CEO, said. “If, as a contractor, you don’t have the right to send a replacement, there is little prospect of the tool deeming you outside IR35, even if you have control over how the work is done.”

“The consequences of mistakenly placing a contractor inside or outside IR35 are huge for all concerned. 85% of contractors plan to leave the public sector if they are placed inside IR35 by their public sector engager, while recruitment agencies will be left to pick up the bill for any missing tax,” Maley said. “IR35 is a complex issue. It takes expertise and the ability to look at each case individually to be confident of an accurate decision. It’s hard to see how one-size-fits-all approach like this can be completely reliable.

“With little time until changes to IR35 in the public sector are enforced, it’s concerning that HMRC’s new tool has only just been released. Changes are imminent, and there isn’t much time to iron out any teething problems,” Maley said.

ContractorCalculator CEO Dave Chaplin, commented, “The tool states that ‘HMRC will stand by the result given unless a compliance check finds the information provided isn’t accurate’, which is no guarantee at all, because they just have to say ‘you are wrong’ and it doesn’t count for anything.”

“Not only does it not mean anything, but the tool gives a significant number of contractors an “unknown” status. Claiming they will stand by this is hardly pioneering work and does not provide the certainty to the market which was their original goal,” Chaplin said.

“I would urge public sector bodies to consider alternative testing to establish a contractor’s correct IR35 status and agencies should have their standard contracts reviewed by qualified lawyers,” Chaplin said.

“We have repeatedly warned HMRC that a robust online test could not be developed within such a short timeframe,” Chaplin said. “The public sector is in complete chaos and it’s about to get worse as contractors are handed either the wrong result or no result at all.”

The Freelancer and Contractor Services Association has previously said that more work needed to be done on HMRC’s online digital tool when it received a preview of it in November.

For more on reforms to IR35, click here.