HMRC omitted MOO from CEST tool, wrongly assuming all NHS workers would fail.

On Tuesday 31st October 2017 ContractorCalculator broke the news that HMRC deliberately designed CEST without including mutuality of obligation (MOO), a key employment test, from its IR35 tool.

Mutuality Of Obligation is about a sustained obligation for an employee to provide regular work for a worker, and for that worker to work those hours and accept the work offered. For those employed within the NHS, the presence, or absence of MOO, is a key defining factor of their contract. So what would happen if HMRC and the tool they’ve built to assess employment status (CEST), said they assume all Doctors and Nurses are subject to MOO? They wouldn’t would they?

Oh yes they would. During a recent NHS Q&A webinar (see full copy of transcript here) when asked of an instance where MOO wouldn’t be present, it was staggering to hear HMRC’s policy advisor on IR35, Mark Frampton, respond with:

  “It would rarely, if ever be the case in public sector hiring. That is why we did not put questions into the tool about it.”

The claim is frankly ludicrous and without foundation, and directly contradicts IR35 legislation and the employment case law that underpins it. The three main tests of employment need to be considered when evaluating an individual’s status, along with all other factors, and with one fundamental element missing it not possible to firmly conclude if a person falls inside or outside IR35.

Michael Paulin, a barrister for One Crown Office Row, concurred and stated that the omission of the mutuality of obligation test could lead to results that are legally inaccurate and incorrect:

“It stands to reason that if such important elements of case law are omitted from any purported assessment, then there is a real risk that the results of such an assessment may not correspond with the true legal reality.”

What effect is this having on the NHS?

HMRC have apparently been insisting that NHS Trustees MUST use CEST to evaluate locum staff for IR35. Indeed HMRC’s Jim Harra recently stated that the taxman “will only recognise assessments conducted via CEST”. That’s an attempt by HMRC to become judge, jury and executioner on all IR35 assessments - powers which they simply do not have.

 Head of legal at the Locum Doctor’s Union (LDU) and Independent Health Professionals Association (IHPA), Stephen Mhiribidi, says the pressure upon NHS Trusts to use CEST and assess locum staff as inside IR35 is immense.

“NHS Trusts have told us that HMRC has instructed them that all locum staff are  caught by IR35, and that not using CEST to assess contractors won’t amount to ‘reasonable care’ being taken. Trusts see no option but to use the tool so that they have a body of evidence to protect themselves from HMRC.”

“Locum staff are asking why they should complete CEST if they know they are going to be taxed as an employee. We’ve heard of several instances where locum doctors and nurses have completed CEST and received an ‘outside IR35’ assessment, only to have the NHS Trust re-take the test on their behalf, filling in incorrect information contributing to an ‘inside IR35’ ruling.”

The result? These factors are making it near impossible for locum staff to secure outside IR35 contracts, which is in-turn draining the NHS of workers with critical skills.

And Finally…The taxman’s instructions are encouraging an approach to IR35 compliance in the public sector that contradicts and circumvents case law. Since the webinar was delivered in late September, Mhiribidi has received a letter from an NHS Trust claiming that HMRC advised that blanket assessments are acceptable.

Meanwhile, in addition to liability for back taxes, Mhiribidi says HMRC has made it explicitly clear that any Trust that finds a locum outside IR35 will be subject to further “Treasury fines, reputational damage and administrative problems” in the event that HMRC conducts an audit returning an alternative result.

“As a result of this, we’ve had numerous Trusts refuse outside IR35 contracts. They would rather take their chances in court with anybody other than HMRC. I know of just one locum doctor who has agreed an outside IR35 contract with the NHS but he won’t share details of his assessment with us because the Trust is worried about ramifications from HMRC.”

All of these factors combined are making it near impossible for locum staff to secure outside IR35 contracts, which is in-turn draining the NHS of workers with critical skills.

Summary of our findings:

1. HMRC admits that it assumes mutuality of obligation (MOO) is present in every public sector contractor engagement and deliberately omitted this key test of employment from its Check Employment Status for Tax (CEST) tool on this basis.
2. This glaring omission was one of several alarming revelations to NHS Trustees during the delivery of the HMRC webinar on implementing IR35 in the NHS.
3. HMRC states MOO should be assumed present in all public sector engagements.
4. As a result, CEST fails to align with the case law underpinning IR35.
5. HMRC inaccurately claims doctors and nurses are likely to be caught by IR35.
6. Taxman instructions are encouraging unlawful blanket assessments in the sector.
7. Contrived IR35 assessments are driving locum staff away from the NHS.

The Locum Doctors Union has set up a CrowdJustice campaign to raise funds to legally challenge this approach by HMRC. This will help safeguard the NHS by aiming to encourage fair tax treatment and ultimately avoid the skills drain taking place as a result of HMRCs draconian actions. If you can help please visit: https://www.crowdjustice.com/case/unfair-ir35-blanketing/