Pro-IR35 rhetoric

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In the House of Commons last week, Mel Stride responded to questions asked regarding HMRC’s Check Employment Status for tax tool (CEST), delivering the same information HMRC have recently adopted to demonstrate that despite considerable criticism, there is nothing wrong with CEST.

In response to questions asked about the accuracy of CEST, Mel Stride, Financial Secretary to the Treasury, stated;

“The CEST digital service was rigorously tested throughout development, in accordance with government data standards and with input from external stakeholders, prior to release. The accuracy of CEST was checked as part of that process. Results have been tested by HM Revenue and Customs (HMRC) against known case law and settled cases.”

Stride went on to say that;

“HMRC will stand by the result of CEST, provided the information entered is accurate and in line with HMRC guidance. CEST gives an answer in 85% of cases, and where it does not, people can call a dedicated HMRC helpline staffed by specialists who can give them further advice.”

HMRC’s guidance is no easy feat to follow, and it would be very difficult to know that the information entered onto CEST follows HMRC’s guidance. Additionally, if any part of the information entered is incorrect, HMRC do not have to stand by the results.

In answering questions regarding the CEST tool, links were made to HMRC’s position on Mutuality of Obligation and the recently published list of cases which CEST was tested against. In contradiction however, is that Mutuality of Obligation (MOO) is featured in many of the cases, which doesn’t help to support HMRC’s simplistic position that if there is a contract in place, MOO exists.

For example, in the case of First Word Software v HMRC (2003), Special Commissioner Dr. A N Brice stated;

“I also accept the evidence of Mr Atkins that if he had been unable at any stage to work on his part of Project Leapfrog he would not expect Reuters to find him other things to do; he was only there to work on the migration of the human resource and payroll systems. This evidence was confirmed by Mr Turner who said that if Project Leapfrog had been terminated then Reuters would have terminated the arrangements with the Appellant; Reuters did not find other work for contractors to do – that was why they used contractors.”

 

There is no mention of ready Mixed Concrete which was the first case to really establish the three key employment status tests. Although HMRC have abandoned one of them, the right to provide a substitute, and control, remain crucial and do feature heavily in HMRC’s CEST Tool.

In addition, CEST has not been tested against any of the most recent Tribunal cases, such as CAM Ltd or Jensal Software and MDCM Ltd. The most recent case HMRC tested CEST against was ECR Consulting Ltd which was heard in 2011. MDCM was heard before the introduction of CEST – a good opportunity for HMRC to use a very recent case which could have been a useful illustration of today’s working practices.

HMRC do not indicate why they picked such tax cases and why CEST was not put against other hugely significant status cases; perhaps testing against these particular cases would provide the information HMRC does not want us all to see.

With the continuing publicity regarding HMRC’s CEST tool and reform overall, no-one should be surprised if reform is indeed announced in this year’s Autumn Budget, but we still have time to prepare, and that time should be used wisely.

CEST may be a good place to start but it is not mandatory, and it is therefore crucial to undertake independent tests and seek expert advice.

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