A tool that the taxman set up to test IR35 status is seemingly increasingly being ignored — not by experts who have already widely discredited it — but by the taxman himself.
This disregarding by HMRC of what Check Employment Status for Tax returns happened in a new IR35 investigation, following the contractor achieving CEST’s “holy grail”.
An IR35 contract reviewer used the legendary term yesterday, as inputting substitution into CEST returns the sought-after ‘outside IR35,’ and further magically, it outranks other inputs.
Or at least CEST outranked other outputs at the time that the reviewer, Seb Maley of Qdos, ran the tool following the contractor (his client), coming under investigation in Nov 2019.
‘£100k IR35 demand’
In the end, it took HMRC a total of three years to drop the investigation and its £100,000 bill, despite the Revenue tool determining the worker outside IR35 at about the halfway point.
This is not the first time HMRC has set aside an outside IR35 CEST result — which Mr Maley says it did in July 2021, after which it kept investigating the taxpayer for a further 18 months.
In fact, HMRC has “ignored CEST outcomes in previous cases that we have been involved in,” Mr Maley, Qdos’s CEO said yesterday.
‘HMRC will only stand by CEST when it provides the result it wants’
Professional Passport, an organisation that specialises in contractor compliance confirmed: “This is not the first time that CEST has been disregarded by HMRC.
“The same scenario was evident in the case of RALC Consulting V HMRC in 2019 [in which HMRC reportedly applied to have the CEST results excluded from evidence].
“HMRC claims it will stand by the tool’s result, but it seems that HMRC will only stand by its tool when it provides the result it wants”.
‘As long as CEST result accurately reflects the engagement terms’
Significantly, the Revenue now says it will uphold a CEST result “as long [as] it accurately reflects the terms of the engagement”.
And despite those terms being a key aspect which is in dispute in an IR35 investigation, HMRC handed Qdos such a statement to justify it casting aside the outside determination.
Asked why it was disregarding the CEST outcome, the tax authority also said in July 2021: “HMRC stands by the CEST result…[if it] is completed in accordance with our guidance.”
‘CEST can’t be relied upon’
“HMRC ignoring its own IR35 tool [outcomes]? That’s no surprise to me. It asks many irrelevant questions and fails to ask some key pertinent ones in determining IR35 status.
“[So] CEST really can’t be relied upon [by HMRC or anybody else] to add any value,” Mr Topham said. “Not either as a pre-emptive or diagnostic IR35 assessment.”
Professional Passport believes CEST is now in such disrepute, given even its maker is ostensibly turning its back on it, that chancellor Jeremy Hunt should use Budget 2023 to banish the tool.
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