IR35: 11-month FOI investigation into HMRC’s digital tool CEST reveals thousands of contractors have been wrongly taxed
Figures finally released by HMRC, after an 11-month investigation by ContractorCalculator into its Check Employment Status for Tax (CEST) tool, suggest that thousands of contractors could have grounds to appeal against wrongful tax treatment, resulting from unlawful blanket assessments and incorrect assessments conducted by public sector hirers.
The results were finally released after an FOI appeal and eventual intervention from the Information Commissioner’s Office (ICO).
The key points:
- Data indicates 54% of assessments carried out CEST obtained a “IR35 does not apply” result.
- These results are contrary to the widepsread evidence of the use of blanket assessments
- Public sector hirers could now face costly legal challenges for unlawful deductions
- HMRC could face a barrage of tax refunds via self-assessment
Irrespective of the known flaws with CEST and it's questionable accuracy, many public sector bodies have considered it gospel. So, why is there clearly a large disparity between the number of contractors who are told IR35 does not apply by CEST and those who are taxed as being outside of IR35?
Contractors who should have been assessed as outside IR35 and have instead been forced into false employment are well placed to start mounting legal challenges.
Blanket assessments have been rife, for the simple reason that hirers are not prepared to take the tax risk. The irony now is that they are lining themselves up for legal challenges from contractors who have been wrongly assessed. This will cost the hirers more as they work to defend themselves and face repaying the taxes due.
It’s evident that asking hirers and agencies to assess IR35 status has been a massive error of judgement.
If you think this affects you we will soon be publishing further details as to how you can mount your challenge. In the meantime, please share to your connections and leave your comments below.
Senior Business Leader | Change Management | Risk, Regulatory, Finance | Board Advisor | Financial Services & Banking | Looking to support businesses to attain objectives in an interim, board and consultancy capacity
4 年There will be a bonfire of litigation
Advanced Ultrasound Practitioner & Former Company Director at South West Ultrasound Services Ltd
6 年I am an ultrasound practitioner working in the NHS - I was given 6 weeks notice to suspend my company & faced being forced into being paid via an umbrella company - my agency at the time were nothing short of useless - I swapped agencies - I researched umbrella companies but became very suspicious of how they proposed to pay me ( loan that would not need repaying etc etc ) . I really did not know what to do & the information available seemed very unreliable . At the 11th hour before I had been warned I would not be paid ( 6/4/17 ) the Trust I work with told me I was assessed as being inside IR35 & would be paid by the Trust via Direct Engagement ....... I have spoken with HMRC many times after attempting to use the CEST tool to assess myself - I could only get so far with the assessment and I was told to call them - I got nowhere . I receive a pay slip with little relevant info on it . No recorded hours worked - no hourly rate - no record of the employer NIC's which is deducted from my hourly rate prior to employee Tax & NI is also deducted . It has been a traumatic year - pay cut of approx 28% with no discussion , no negotiation & no representation . I still have to idea as to my identity - employee? , worker ? , who knows -
Project Director NHSE at NHS England
6 年As I have said in a previous comment, get around it! The public sector is a lost cause, well almost but when they bring it into the private sector consultants, interims, freelancers should work in groups. Therefore no more PSC whatever that is supposed to mean. Structure the company so each director is responsible for getting their own work and only gets paid for what they do. Easy solution to the 'substitution' issue as you have trained colleagues who have been briefed on the project. Public sector may accept a substitute under these circumstances as they are finding it increasingly difficult to find consultants who will work under IR35. The private sector would be mad not to accept this kind of set up. It also depends on the terms of the contract and the private sector will simply write contract terms that are outside IR35, they won't be able to function if they don't!
MAPM MPWI MIET MINCOSE AIRO MCIM Current Head of Rail Systems & Civil Infrastructure, Leader, Former Company Chairman, NED, BU Director, Business Strategy & Development, Rail Systems & Infrastructure Consultant, Mentor
6 年It’s scandalous but given what we have see in other government departments it’s hardly surprising The intention is obviously to remove any Benefit from contracting as an individual operator but why? It’s hitting government departments like DfT who are struggling to get short term expert inputs economically and fails to recognise the risk of continuity to the individual who offers flexibility that corporates cannot
Freelance Developer at N51 Solutions Ltd
6 年The landing page says "This service is anonymous and won’t store any information you enter or the result given." which seems misleading as it obviously is storing both the result, and the path to get to the result.