IR35 win highlights failings of legislation

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Contractor’s IR35 win highlights failings legislation and cements fears over CEST

Attention remains firmly on IR35 following a construction contractor’s (MDCM Ltd) successful appeal in a First Tier Tax Tribunal last week.

After concerning reports of The BBC’s and The NHS’ handling of IR35, this contractor’s victory over HMRC was welcome news in a month in which two of the UK’s most highly-regarded organisations look to have failed potentially thousands of contract workers.

 

Despite the fear surrounding IR35 currently, MDCM Ltd’s win against HMRC shows that an IR35 investigation does not necessarily result in a victory for the taxman. Should a contractor lose their case, subsequent rulings can be appealed and decisions can be overturned.

This case also makes the failings of IR35 blindingly apparent. If HMRC themselves can’t correctly identify whether a contract should sit inside or outside IR35, who’s to say public sector organisations, and in time, potentially private sector companies will be in a position to do so?

Recent BBC and NHS revelations highlight the difficulties that certain public sector organisations continue to face following last year’s IR35 reform, so to extend similar changes to the private sector anytime soon would be unwise.

MDCM Ltd’s case reflects that the IR35 legislation needs simplifying, and the Government would perhaps be better off addressing these complexities instead of pushing ahead with much speculated reform.

That HMRC’s ruling was overturned in the Tribunal also casts the spotlight back on CEST, regardless of the fact the working arrangement in question took place between 2012 – 2014, and before the release of the much maligned IR35 testing tool.

HMRC built CEST, and it has since been judged it was wrong about a contractor’s IR35 status. What does this say about the accuracy of the IR35 tool if the architect can’t make a correct assessment of a working arrangement?

 

CEST has been publicly criticised recently, with BBC presenter, Kirsty Lang, arguing that it is ‘not fit for purpose’, given a number of its questions are irrelevant to so many self-employed workers. Certainly, a ‘one-size-fits-all’ tool, as it was also described in the recent DCMS committee meeting, cannot cater for individual and industry-specific details, which might, for example, only apply to an IT contractor, a construction worker or even a broadcast journalist.

This case does leave you to wonder whether the Government has its priorities in order, with regards to IR35. Surely, simplification of the existing rules and a thorough review of CEST would be the smart move, and not the announcement of private sector reform?

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