PAYROLL INSIGHT
Employment status and the digital tool
Peter Minchinton, employment taxes consultant at PSTAX, considers the different questions asked by the ESS, their significance and whether ultimately the answers give an accurate decision
W hen the government decided to compel public bodies to determine whether a worker was within ‘IR35’, HM Revenue & Customs (HMRC) introduced the new employment status service (ESS) digital tool to replace the employment status indicator. The ESS tool has been designed to help both workers and end clients decide if a worker engaged via an intermediary is within ‘IR35’ or not. The tool will also help determine whether an engagement between the end client and an individual worker should be treated as ‘employment’. The current version has been shortened from the initial test version where there were 58 questions to be considered. Many were ambiguous and, at a meeting with HMRC, delegates pointed out how these could be misinterpreted. The writer was one of the testers of this beta version and was surprised at the prevalence of questions on ‘substitution’. In the current version of the ESS there are 24 questions in total, but in the test version there was nearly that number on substitution alone, including one which asked “If the worker decided to send someone else to do the work, could the end client turn away the other person even if they’re qualified to do the work?” The questions on substitution are now down to just five, but let’s start at the
beginning of the series. The questions start by asking who is completing the questionnaire – the worker, the end client or the agency – and has the engagement started. It then asks how the worker provides the services and if the engagement is an ‘office’. Answering ‘Yes’ to the latter question ends the questionnaire and puts the engagement straight into employment. ...ESS tool has been designed to help both workers and end clients... substitution. These are very important as, if there is a genuine right of substitution, the worker won’t be an employee. However, many contracts put a substitution clause in as a matter of course, so HMRC tend to ignore it unless the engagement has the likelihood of substitution. Some years ago, at a tax tribunal, a worker attempted to get out of IR35 by claiming a right of substitution. HMRC arrived with a representative of the end client who stated they would not accept a substitute as they wanted that worker for their specific expertise – so that one failed. If these initial hurdles have been overcome, the questions move to
The notes to the question on whether a substitute had been sent state that a substitute: “means someone who: ● was equally skilled, qualified, security cleared and able to perform the worker’s duties ● wasn’t interviewed by the end client before they started (except for any verification checks) ● wasn’t regularly engaged by the end client ● did all of the worker’s tasks for that period of time ● was substituted because the worker was unwilling but not unable to do the work.” The question’s response options are: “Yes, the client agreed”, “Yes, but the client didn’t agree”, and “No, it’s never happened”. With the same notes the next question asks if the client will accept the worker’s business sending a substitute. This is a straight ‘Yes’ or ‘No’ answer. If yes, the next question asks who pays the substitute. If the client continues to pay the worker, and therefore the worker pays the substitute, then the ESS concludes that the intermediaries legislation does not apply. This may seem to be a ‘perfect’ outcome, but beware! We can expect HMRC to challenge these ESS conclusions in many public sector contexts. As the right to
| Professional in Payroll, Pensions and Reward | May 2017 | Issue 30 18
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