IR35 and Failure of CEST Impacting UK Business

August 20, 2018

In recent weeks, IR35 has caused yet more uproar amongst the UK’s self-employed. HMRC have been accused of cutting corners with the legislation, with its CEST tool making headlines for all the wrong reasons.

With the consultation into the introduction of IR35 to the private sector recently concluded on 10thAugust, authorities such as IPSE and REC have called for HMRC to resolve the considerable flaws of their CEST tool.

IR35 and the CEST tool are unreliable and inconsistent. But how are they harming UK business in 2018?

Failure of CEST

While IR35 has been debated continually in recent months, the CEST (Check Employment Status for Tax) tool used to assess whether an individual’s work falls under the legislation has faced considerable criticism, with several successful cases made against it.

A 14-month investigation conducted by Contractor Calculator revealed that out of 24 cases, the CEST tool made the wrong decision in seven cases. 14 cases received the right decision but for the wrong reasons.

This reveals the sheer unreliability of the tool in assessing such complex legislation. HMRC have even acknowledged that the CEST tool’s questioning system does not match the complexity of an official inquiry. Andy Vessey from contractor insurer, Qdos, states that while the CEST tool asks a maximum of 16 questions, an official inquiry would ask 50, before delving into the more complex matters of each case.

Despite HMRC claiming that they would stand by their CEST tool, some cases portrayed how this stance disappeared once CEST was found to have made the wrong decision. How can companies and contractors rely on such tools, if HMRC do not?

Clearly this tool is ineffective in dealing with the intricate decisions involved in the enforcement of IR35 legislation. Not only does it harm the self-employed, it harms the growth of UK business.

How does CEST’s failure affect UK business?

With some large multinationals having been known to pay relatively little in corporation tax, HMRC has been accused of straggling UK businesses by failing to deal with CEST’s inconsistencies.

All corners of the public sector, including the NHS, are struggling. It is easy to see how the practice of “blanketing” IR35 on all contractors, alongside the subsequent legal cases, has become prevalent; the private sector will surely also suffer.

Harvey Nash Recruitment Solutions’ IR35 Survey found that 80% of respondents believed IR35 had made a negative impact on the public sector. 49% were then only seeking private sector contracts.

As contractors stop taking on contracts in the public sector, HMRC fails such organisations. If IR35 is enforced within the private sector as it stands, UK business growth will undoubtedly suffer.

IR35 and CEST: What should be done?

The inaccuracies and unreliability of HMRC’s CEST tool are clear for all to see. HMRC must review IR35 legislation as a whole, ensuring that the evaluation process is fair and easy to understand, yet matches the complexity needed to deal with such intricate tax legislation.

HMRC can no longer pass the buck onto companies; they must take on the criticisms that IR35 and the CEST tool has received, to ensure that such issues are resolved, and the growth of UK business is not affected.With the consultation for IR35 in the private sector closing this week, the UK’s self-employed will be waiting with bated breath to see how HMRC will deal with these issues.

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