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HMRC and the online tool- Have they painted themselves into a corner?

HMRC and the online tool- Have they painted themselves into a corner?

Adrian Marlowe

Adrian Marlowe

The idea of ‘painting a picture’ in order to make a
well-rounded assessment of employment status is a widely acknowledged one.
However in light of the more ‘mechanical’ approach soon to be taken by HMRC
with regards to arguably one of the most nuanced tests, IR35, a recent case
reiterates again the need to make these assessments on a case by case basis.

The case of Dhillon and
Dhillon v HMRC, published earlier this month, is concerned with whether
drivers engaged by Mr. Dhillon’s business were employees or independent

The judgment of course followed the precedent of the established
judgments before it, and ultimately considered the following: the well-known
threefold test in Ready Mixed Concrete;
whether the worker was in business on their own account; mutuality of
obligation; substitution, the surrounding terms; and the intentions of the
parties. After weighing up and assessing all of the relevant factors, the
decision that the drivers were in fact employees rested on mutuality of
obligation, control and the fact the drivers were not obviously in business on
their own account.

While it was not surprising to see the consideration and
weighing up of these different factors (acknowledged generally as being the key
indicators of employment status), it is ironic that HMRC, the developers of the
new online tool set to assess IR35 status from April 2017, have emerged
victorious in a case carefully detailed over 28 pages, when soon, the decision
will be made using HMRC’s planned online status tool which uses algorithms and
check boxes.

The judgment states that ‘Not unusually, the indicia of employment vs self-employment,…. do not
point consistently in one direction’ and it is herein that the sticking
point for HMRC’s new online tool lies. In other words a full and thorough assessment
needs to be made in order to reach a decision that reflects the business
reality of each situation. How so using an online tool?

The judgment goes on to state ‘The process, once the facts and circumstances are determined, is one of
evaluation and where mechanical application of the guidance contained in many
decided cases on this topic is to be avoided’. Furthermore, the judgment
echoes the warning in Hall v Lorimer by
stating that ‘The case authorities underline the importance of avoiding a
checklist approach…’
Again, it is difficult not to think instantly of the new online tool.

So have HMRC painted themselves into a corner? This judgment
certainly seems to suggest that this is so. The new IR35 status tool is meant
to provide a clear outcome, which HMRC has said it will stand by.

Here at Lawspeed we have always warned against a
‘tick box’ questionnaire approach ever since we first advised on IR35 16 years
ago and drafted the first ever IR35 contract for agencies and contractors,
which resulted in the first ever reported contractor IR35 win. If you need any
help on IR35 or status, including tax issues, contact us on 01273 236236.

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