Contractors, have you put ChatGPT through its IR35 paces?

As a “highly advanced language model” with an awful lot of rave reviews, it’s a shame ChatGPT’s knowledge cut-off is 2021, as that’s the very year that IR35 completed its reform in the UK and when from April 6th, the off-payroll rules in the private sector have applied.

But from putting the AI tool through its paces, exclusively for ContractorUK, I can reveal that ChatGPT knows most of its IR35/off-payroll stuff, writes Kate Cottrell, co-founder of status specialists Bauer & Cottrell.

Questions of an IR35 nature for ChatGPT

Might the tool threaten living, breathing, experienced IR35 contract reviewers, or will the human touch prevail?

Might ChatGPT have something to say about its fellow tools, all vying to decide contractor IR35 status in just a few clicks? Might it even fancy blowing CEST and private sector alternatives out of the water, so ChatGPT becomes the ‘go-to’ IR35 tool?

ChatGPT knows the basic and complexities of IR35

Before I get the tool to address these queries, what’s clear is that despite its untimely cut-off (“I have information on IR35 tribunal cases up until 2021, but my knowledge cut-off is 2021”), ChatGPT has picked up both the basics and the complexities of IR35, as well as the processes required today for the off-payroll rules.

With those basics like the importance of substitution, MOO and control under its AI trainer-informed belt, ChatGPT does well with simple IR35 queries, like ‘What does it mean to be inside IR35?’, and ‘What does it mean to be outside IR35?’

Last year’s off-payroll rules added further complexity, says ChatGPT

But impressively, the tool has also picked up on differing views about the Intermediaries legislation, including how the rules are “confusing” and “difficult” and how the changes by way of the off-payroll rules in the public and private sectors have “added further complexity” and “created confusion and uncertainty.”

And are “difficult to understand.” And “may lead to disputes and errors”.

Lessons for officialdom

This comes as no surprise and maybe the powers that be may notice that even a trained AI chat bot can see (in seconds) what a mess it all is. 

The powers that be could also learn something else from ChatGPT. The answers it generates are produced quickly; are clearly written, and above all else are concise. By contrast, just check out (if you’re brave enough) HMRC’s “guidance” – with its thousands of entries!  

Some interesting answers to some big IR35 questions

Here are some of ChatGPT’s finest moments, with my questions to it bulleted and italicised.

• Is HMRC correct about the meaning of Mutuality of Obligation when they say it is simply do some work and get paid or is it more than this?

ChatGPT: According to HM Revenue & Customs (HMRC), Mutuality of Obligation simply means that an employer is obliged to provide work, and the worker is obliged to do that work in return for payment. This is one of the key factors in determining employment status for tax purposes, including for the purpose of IR35.

However, some experts argue that Mutuality of Obligation is a more complex concept and involves a number of additional obligations, such as an implied obligation for the employer to provide work and for the worker to accept it, as well as an obligation for the employer to pay for the work that has been done.

Ultimately, the interpretation of Mutuality of Obligation can vary and may depend on the specific circumstances of each case. It is advisable to seek professional advice in determining the employment status for IR35 purposes.

• Are the IR35 off-payroll rules too complicated?

ChatGPT: The IR35 off-payroll working rules can be complex and challenging to navigate for both workers and engagers (i.e. end clients). Many workers, intermediaries, and engagers have found the rules to be confusing. This can make it difficult for individuals and businesses to understand and comply with the rules and may lead to disputes or errors.

Additionally, the rules have been subject to several changes in recent years, including the introduction of the off-payroll working rules in the public sector in 2017, and the extension of the rules to the private sector in April 2020.(Note; this is wrong and should state ‘April 2021’) This has added further complexity to the rules and may have created confusion and uncertainty for those affected.

Overall, it is widely acknowledged that the IR35 off-payroll working rules can be complex, and it is advisable to seek professional advice to ensure compliance with the rules and to understand the impact on a particular working arrangement.

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Next, I posed ChatGPT some queries about IR35 tools including HMRC’s CEST.

• HMRC has a tool called CEST to check status under IR35 - is it any good?

ChatGPT: CEST (Check Employment for Employment Taxes) is a tool developed by HM Revenue & Customs (HMRC) to determine the employment status of a worker for tax purposes, including for the purpose of IR35 (off-payroll working rules). The tool provides a determination based on a set of answers to questions about the working arrangement.

However, its accuracy has been widely criticized, and many experts consider that its results may not always be reliable.

• Some businesses have invented their own tools to decide IR35 - can you rely on any tool to get the right IR35 decision?

ChatGPT: While some businesses may have developed their own tools to determine IR35 status, it is important to understand that the determination of employment status for IR35 purposes is not a straightforward process. The rules can be complex and the determination of IR35 status will depend on the specific circumstances of each case.

Self-assessment tools, including those developed by businesses, can provide guidance and support in determining IR35 status, but they are not a substitute for professional advice and should not be relied upon as the sole basis for making an IR35 decision.

Ultimately, businesses are responsible for ensuring compliance with IR35 and for determining the correct employment status of their workers. The use of tools and self-assessment methods may help with this process, but they should not be relied upon as the sole basis for making a decision.

A tool trouncing a tool…

As you can see from the second paragraph (which I’ve emboldened for emphasis), ChatGPT appears to be going against its own kind, assuming that reliance on an IR35 status decision is something you want from an IR35 review!

This favouring of humans over machines continues, if you ask the tool if it wants to step up and rival the likes of CEST:

• Could you invent an IR35 tool that does work?

ChatGPT: As an AI language model, I don't have the capability to invent tools. My primary function is to generate human-like text based on the input I receive and the information I have been trained on.

However, I can explain the principles that would need to be considered in developing an IR35 tool.

An IR35 tool would need to be based on a detailed understanding of the IR35 off-payroll working rules, as well as the relevant case law and guidance from HM Revenue & Customs (HMRC).

In order to be reliable, an IR35 tool would need to be developed and maintained by experienced IR35 experts, who have a deep understanding of the IR35 rules and the relevant case law. The tool would need to be regularly updated to reflect changes in the law and to provide the most accurate and up-to-date guidance.

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Cleary keen on status experts, I then chanced:

• Should contractors outside IR35 have all their contracts professionally reviewed?

ChatGPT: In general, it is advisable for contractors who are working outside IR35 to have their contracts reviewed by an experienced IR35 expert. This is because the determination of IR35 status can be complex, and it is important to ensure that contracts accurately reflect the reality of the working arrangement and provide adequate protection against IR35 challenges by HM Revenue & Customs (HMRC).

Professional contract review can also help contractors to identify any areas of risk and ensure that their contracts are compliant with the IR35 rules. A review can also provide contractors with advice and guidance on how to strengthen their position against IR35 challenges.

Ultimately, the decision of whether to have a contract reviewed by an IR35 expert will depend on the individual contractor's circumstances and risk tolerance. It is important to seek professional advice and to carefully consider the benefits and drawbacks of contract review before making a decision.

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As I said at the outset, ChatGPT clearly knows its IR35/off-payroll stuff!

Here, the serious point to note is that the tool recognises that much depends on individual circumstances, attitudes to risk, and that the sheer complexity of IR35 shows the sensible approach is to recommend seeking specialist advice.

Too clever a response not to include here, I also asked ChatGPT:

• Should the off-payroll rules be revoked?

ChatGPT: The decision to revoke the off-payroll working rules, commonly known as IR35, is a matter of public policy and political debate.

Arguments in favor of revoking IR35 include concerns that the rules place an excessive administrative burden on contractors and businesses, and that they can lead to confusion and uncertainty. Some argue that the rules can also result in significant financial costs for contractors, businesses, and the public sector.

On the other hand, proponents of IR35 argue that it is necessary to ensure that contractors who work in a similar manner to employees pay the same taxes as employees. They also argue that IR35 helps to prevent tax avoidance by ensuring that contractors are correctly classified for tax purposes and that they pay the correct amount of tax.

As a neutral AI language model, I do not have opinions or personal views. The decision on whether to revoke the off-payroll working rules is ultimately a matter for the relevant government agencies, lawmakers, and the public to decide.

Future updates…

ChatGPT is fun to use and makes it easy to understand the basics of IR35 and the off-payroll rules. 

However, it is not always right and constantly recommends seeking specialist advice because it has grasped, very quickly, that the subject matter is extremely complicated. ChatGPT caveats: 

It's important to note that I am not a government agency and I don't provide official legal or financial advice. My responses are based on the information I have been trained on and are intended to provide general information and guidance on IR35 and the off-payroll working rules. If you need specific advice on IR35 or the off-payroll rules, it is recommended that you consult with a qualified tax professional or IR35 expert.

Between drafting this article and finalising it, I note that the AI trainers must have been busy at work, because a fictitious IR35 judgment which ChatGPT was returning, is no longer being returned. I wonder if the next version will be “trained” sufficiently to dispense with IR35 specialists, accountants and even HMRC?!