CEST IR35 tool under fire after NHS hit with £4.3m tax bill

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An NHS Digital accounting update has revealed that it must create a £4.3 million accrual to cover tax, interest and penalties after it determined its contractors’ IR35 status incorrectly between April 1 2017 and December 31 2018.

The botched status results came despite the NHS using HMRC’s own CEST tool. The oft-lambasted tool’s claim of being able to determine a contractor’s IR35 status in 16 questions has led to experts recommending that businesses use more rigorous independent testing, with external investigations often asking around 50 questions before making a determination.

Charlie Cox, the commercial manager of recruitment firm SThree, says: “The safest thing for a client to do is to [independently] …assess the contract workforce, take a pragmatic approach to the assignment determinations and engage with each contractor individually, taking reasonable care in the process.”

The Secretary General of the Independent Health Professionals Association, Dr Iain Campbell, echoed this statement, describing CEST as “mechanistic”, whilst contractor business insurance expert Dominic Johns called independent assessments “more reliable”. Dr. Campbell added: “[CEST] is the wrong approach, misses key tests, and could never…[replace] specialist tax advice.”

HMRC has also been criticised for backtracking on its consistent promise to stand by the results generated by the CEST tool. In 2017,  an HMRC spokesman stated: “HMRC will stand by its result where correct information has been inputted in line with the guidance”.

Dr. Campbell said this case proves HMRC’s “promise is actually nothing but lexical smoke and mirrors”, adding: “A look at the caveats usually given by HMRC when saying this, reveals they claim they will view the result as binding if it is completed correctly. This of course means they reserve the right to disagree with any answers they please.”

HM Treasury and HMRC have come out in defence of the tool, with an HMRC spokesperson saying: “…we just want to help organisations get the rules right. HMRC has put an extensive range of support in place to help businesses and other organisations get the status of the contractors they engage right.” HMT added: “For the more complex cases, customers are able to access detailed guidance or call HMRC’s dedicated helpline for one-to-one support.”

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