It has been reported that NHS Digital is facing a £4.3m tax bill for the period April 2017 – December 2018. The tax bill, which includes interest and penalties, was issued after HMRC investigated a large number of IR35 status assessments made using its own online assessment tool, CEST.
NHS Digital’s Annual report details how their CEST assessments were challenged following the implementation of the Off-Payroll rules in April 2017. Even though the organisation undertook a ‘considered assessment of the status of each individual contractor’, HMRC decided that the assessment tool had been used incorrectly.
CEST has been widely judged to be unfit for purpose, with one industry representative commenting that it was ‘as much use as a chocolate fireguard’. However, the government has consistently failed to acknowledge the tool’s flaws, stating in their current Briefing document that they will stand by its verdict, “unless a compliance check finds that the information provided isn’t accurate.”
Given that there is no guidance on what constitutes ‘accurate’ information, this proviso allows HMRC to effectively pick and choose which cases to dispute, even arguing against the relevance of their own assessment tool when the verdict doesn’t support their subjective opinion.
A series of tribunals have amply demonstrated that the tool is oversimplified, and does not reflect the detailed assessment method used by the courts to determine employment tax status. While CEST mostly relies on the question of substitution, this has been shown to be increasingly irrelevant at tribunals, while the relevance of ‘control’ and ‘mutuality of obligation’ are not adequately represented by the tool’s questions.
These fundamental flaws make the introduction of CEST to the private sector next April a potential recipe for disaster. Many businesses will be tasked with making status determinations for the fist time, using a flawed system that places them at risk of tax liability.
NHS Digital has since changed their internal assessment method, and are now using an external provider to reassess any contractors deemed outside the scope of IR35. However, not all organisations have the time or provisions to double check the status of all their contracts, which has resulted in many adopting a ‘no limited company’ policy ahead of next April. This has seen an increase in the use of umbrella companies as a safe interim measure.
This content has been supplied by IR35 Guru.
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