IR35 Tests: Is There a Limit to Tech?

Call our best advice team free on mobileSorry, we are currently closed.
Please email us or Request a callback
Whether you want to ring us, request a callback or chat online with our experts rest assured that no matter how you get in touch, you'll always get the best advice

Technology continues to revolutionise the way we live and work and business is no different. The global artificial intelligence market is expected to reach $267 billion by 2027. This staggering growth will lead to increased productivity and technology taking an even bigger role in our lives through algorithms and machine learning.

However, with great power comes great predictability. Earlier this year the limitations of algorithms were laid bare when the UK Government was widely criticised for the GCSE and A-Level results fiasco. This highlights how algorithms are still restricted in how they evaluate complex human behaviour.

With upcoming reforms to IR35 fast approaching, many agencies and end hirers are looking to automated tools to determine whether their contractors lie inside or outside IR35. In this article, we’ll explore the limitations of automation and explore how by using a blended approach, you can get the best of both worlds.

Inconclusive IR35 tests

In other words, getting no answer at all. In the Parasol X QDOS Vodcast, the HMRC CEST tool has been criticised by leading figures in the industry for having - in their words - indeterminate answers. This means that when end hirers enter information for a contractor, the CEST tool is sometimes unable to determine whether a contractor is in or out of IR35.

Many people doing these tests are working under pressure to tight deadlines. If IR35 tests of employment are coming up with indeterminate answers, then it is more likely to lead to human manipulation.

Risk-averse IR35 assessment tools

Some IR35 test tools are built to be risk-averse. This means that many of the IR35 test questions are made so that the contractor is found to be inside IR35, when in reality they may be outside. As a result, IR35 assessments are not being conducted properly, or compliantly. Meaning that some independent professionals are paying more tax than they should and making recruiters/end hirers less competitive to competitors, who use accurate IR35 test criteria.

For example, if there are two recruitment agencies (both acting as end hirers) competing for the same jobs. With one using a risk-averse automated tool and one using a blended approach where they can speak with a tax expert, there may be roles where the automated tool incorrectly determines the contractor inside IR35, when a tax advisor would have assessed the role outside. This means that one recruiter would be able to offer the same contractors more money, for the same role.

Status is subjective

Sometimes there’s more than meets the eye, and certain nuances can’t be explained through simple yes and no questions. This is one big limitation with automated IR35 tools - you lose the ability to describe the situation and it can mean that you and the contractor may get the wrong IR35 determination.

You need to have the flexibility to fully explain the situation to a real person. You may save your contractors and end hirers money, by being able to fully consider the working practices. This can give recruiters/end hirers a significant advantage when attracting the top contracting talent.

Blended approach

Here at Parasol, we have partnered with Qdos to help determine IR35 status for our clients and their clients. This blended approach gives you a comprehensive IR35 assessment tool that has the scope to give more detailed answers and the ability to speak over the phone with a dedicated tax expert. Giving you peace of mind that the IR35 status of your assignments are being determined in a compliant way.

Here are some benefits Qdos’s tool has over CEST and other similar automated IR35 test tools:

Qdos is more comprehensive - All recognised status tests included

Goes beyond yes and no - Provide context around your answers

Assessed by a tax professional - Giving you a fair view of each assignment

No inconclusive results - This tool will always give you a decision

If you would like to find out more, take a look at our Parasol X QDOS Vodcast over on our YouTube channel.