The Association of Recruitment Consultancies (ARC) has asked the government not to implement proposed changes to IR35 rules until a “proper and meaningful” review of the reforms have taken place.

From 6 April, new rules are expected to mean that public sector hirers and agencies will need to assess a contractor’s IR35 status.

But the ARC is concerned that the changes, which have been criticised by contractor service providers, may not be legal.

HMRC recently launched a tool, Employment Status Service (ESS), which allows organisations to determine the IR35 status of public sector contractors.

“Use of an online tool has always been claimed by HMRC as fundamental to the success of its new policy to require public sector hirers and agencies to assess IR35 and, where it applies, pay taxes on a PAYE basis,” Adrian Marlowe, ARC chairman, said.

“However, as our public law specialist lawyers Bindmans have now said in their carefully argued letter, ‘reforms (to IR35), whilst the online tool remains flawed …. in the ways set out…, would either be unlawful or lead to unlawfulness’.”

Mr Marlowe said the way the online tool had been developed was “deeply worrying”.

“From the outset we have expressed concerns, as have many others, as to how the tool could work legally in practice given that HMRC says that it will stand by the result.”

Marlowe concluded, “The fact that there should be IR35 reform is in no doubt, but the method used should not bring about the unlawfulness and problems that seem very apparent, as advised by our lawyers Bindmans.”

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