Is HMRC’s IR35 tool up to scratch? And if not, why not?

06th July 2017
Written by Qdos Contractor

Is the ESS tool fit for purpose?

Just a handful of weeks before long-mooted about and hugely controversial changes to public sector IR35 were introduced back in April, HMRC hurriedly released The ESS Tool – the purpose-built test designed to determine whether public sector contractors sit inside or outside IR35.

Needless to say, contractors were sceptical. And can you really blame them? Thousands of experienced, legitimate UK contractors were being made to watch on helplessly as the responsibility for determining their own employment status was handed to their public sector clients and agencies, who, in all fairness, were – and to a certain extent still are – somewhat inexperienced and unprepared in dealing with such matters.

Adding insult to injury, the very tool used by many public sector bodies and agencies to set the IR35 status of public sector contractors, was untested, untried and as many leading industry voices bluntly put it, ‘not fit for purpose’.

This wasn’t a good start. And given recent Qdos Contractor research highlighted that a staggering 85% of public sector contractors would leave their contracts and stop working in the public sector entirely if they were found inside IR35 and caught by the new rules, panic inevitably ensued.

Public sector contractors, were unsurprisingly nervous about the situation, and many still are. A telling 85% of contractors surveyed by Qdos Contractor do not trust HMRC’s ESS Tool – the very technology built to decide the IR35 status, and given their readiness to leave the public sector – the fate of thousands of vital contractors.

But where does this overwhelming lack of trust surrounding HMRC’s IR35 tool stem from?


Designed and built by HMRC – and ironically largely by a team of contractors – independent professionals in general are wary of a tool built by the taxman to capture supposed tax avoidance.

Contractors stated:

“Trust a tool provided by the Gamekeeper? No way.”

“I simply don't trust HMRC on anything IR35 related.”

“The IR35 assessment needs to be independent and impartial.”

A rushed release

HMRC cut it very fine, releasing the ESS Tool on 2nd March – just a fraction over 4 weeks before public sector IR35 reform was enforced. Did this really leave enough breathing room for in-the-field testing before one of the most significant changes to employment law in recent years was introduced?

Arguably not, as one contractor aptly explained:

“It’s in a constant state of flux. I understand the advantages of agile delivery, but if ever there was an example of something that needed to be finished before it was released, this is it.”

Constantly moving goalposts

The ESS Tool has been tweaked and refined on-the-fly, post release. It begs the question; are the results it gave three months ago as accurate as the ones it gave, say, yesterday?

Perhaps not, as a handful of contractors highlighted:

“How can I trust that a decision given to me by the tool today will still be valid tomorrow?”

“Since it was introduced it has changed many times. It’s so difficult to get a definitive baseline. I’m not convinced.”

“They keep tweaking it, which constantly moves the goalposts.”


Contractors have raised concerns around the definition of ‘substitution’ in a contract, which the tool is largely reliant on in its decision.

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, regardless of whether you have control over how you carry out your work.

Two contractors touched on this issue:

“My public sector client will not accept substitution even though it’s in my contract. So I fail the test.”

“It seems that if you have the right of substitution it will typically determine that the engagement is outside IR35.”


While the working arrangements of many contractors may be similar, no one contract is identical – which is why each case must be assessed individually, by an expert.

Contractors clearly agree:

“It might provide an indication, but doesn't take into consideration the unique circumstances of each contract.”

“I can't see how a tool with so few questions can make an assessment which might otherwise take weeks to investigate.”

No contractor involvement

And is it really possible to accurately set the employment status of a contractor without including them in the process?

One contractor clearly doesn’t think so:

“The tool said I was outside IR35 but the employer has deemed me to be inside IR35. But it won't provide any explanation…”

While the dust has somewhat settled on April’s changes and a number of public sector organisations including The NHS have reversed their initial blanket IR35 determinations, an air of uncertainty remains.

HMRC’s ESS Tool leaves a lot to be desired, and there is no room for error when it comes to deciding IR35. Joined-up thinking from public sector organisations, agencies and contractors is needed to ensure fair and accurate IR35 decisions on a large scale.

If you feel you have been wrongly placed inside IR35 by any client –  whether that’s in the public or private sector – get in touch with a trusted Qdos Contractor IR35 expert for advice.

For the public sector, Qdos Contractor is working closely with agencies and their key public sector bodies, to ensure the fair and continued use of contractors in the public sector.

Qdos Contractor
Written by
Qdos Contractor
Award-winning providers of insurance for the self-employed, Qdos are the leading authority on IR35, offering industry-leading employment status services to ensure the flexible working industry thrive. Qdos are the Best Contractor Insurance Provider 2022 and won the Queen’s Award for Enterprise in Innovation 2022 and 2017. 

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