Determining a contractor’s IR35 status is important, but recently HMRC’s Employment Status Service (ESS) has been called into question. One authority says that the tool is not legally binding and even using it does not mean that reasonable care has been taken in determining status.

The statement came from The Law Place’s Martyn Valentine. His firm specialises in employment status law. Mr Valentine stressed that the ESS tool has shortcomings and could present serious risks to agencies and clients.

According to Mr Valentine, the ESS has no legal authority, the only way to be 100 percent certain is to get a court ruling, using the ESS does not constitute reasonable care, and the ESS could see agencies and clients at risk of incurring a tax liability.

Mr Valentine warned, “Relying on the error-prone ESS could be tantamount to negligence unless it is radically overhauled. It is likely a far more reliable defence to an accusation of failure to exercise reasonable care to establish tax status would be provided by a reasoned opinion based on the terms of the contract and the working practices.”

Valentine’s criticism of the ESS tool is that it oversimplifies the determination of IR35 status, and has other shortcomings. These include that the ESS gives results which are not consistent with case law, whilst it examines the contact, it does not fully assess ongoing working practices.

Mr Valentine says that whilst no tool could be legally binding, the ESS cannot be relied on.