IR35 campaigners have called on HMRC to take down its Check Employment Status for Tax (CEST) tool after highlighting its inadequacies.
In an open letter, Dave Chaplin CEO of ContractorCalculator, argued that the CEST tool failed to offer accurate results, and that HMRC’s continued defence of it is “akin to climate change denial”.
The CEST tool is key to helping employers to determine employment status under the Off-Payroll (IR35) rules that are due to be rolled out to the private sector next April. However, Chaplin argued that evidence of its use in the public sector, where IR35 already applies, shows CEST is inadequate.
Chaplin pointed to numerous public bodies that have assessed their contractors and have found a large proportion of them should be ‘deemed employed for tax purposes’. For instance, Network Rail found that, of its 817 contractors, just seven were not caught by IR35. While tax tribunals have ruled against HMRC’s employment status decisions involving television presenters.
“By your own [HMRC’s] estimates, roughly a third of contractors are within scope of the rules. Why do the figures obtained from the BBC, Network Rail, HS2, the Met Office and the CCS contrast so sharply? The answer is CEST, a digital extension of your blinkered perception of employment status law,” wrote Chaplin.
He continues: “Though you have continued to reiterate that ‘when used correctly’, CEST will provide the correct outcome, we are still awaiting evidence demonstrating this supposed accuracy.”
Chaplin believes that CEST is having a damaging effect on individuals, public sector projects and the labour market as a whole. And that HMRC’s refusal to recognise CEST as the cause of the “disproportionate uptick in ‘deemed employment’” and to be held accountable is unacceptable.
“Proposals to introduce the Off-Payroll rules to the private sector with a compliance process underpinned by CEST will only amplify the chaos,” Chaplin argued.
As a result, ContractorCalculator is campaigning for several changes including: an independent inquiry into CEST; a recall of CEST until an updated and accurate version has been developed; and a halt to the Off-Payroll plans until HMRC can prove that the private sector is not at risk.
Although Chaplin accused HMRC of failing to acknowledge the inadequacies of CEST, HMRC is already undertaking work to produce an enhanced version of the tool. The IR35 Forum recently discussed the need for an enhanced tool and HMRC assured attendees that steps were being taken to improve it.
More details into what changes HMRC will be making to the tool were revealed in the Office for Tax Simplification report Simplifying everyday tax for smaller businesses. It noted that the updates will be live before IR35 is introduced in the private sector.
“These updates are things that businesses and representative bodies have said would be helpful,” stated the report. “Among other things, some of the language used will be in plainer English to reflect wider target audiences. HMRC are also looking at having more embedded data in the tool (info boxes and pop-ups at points where people may need further explanation) as well as more in-depth updated customer guidance.”
A consultation into the Off-Payroll working rules from April 2020, which considered the scope of the reform and impact on non-corporate engagers, has now closed.
