A tribunal has overruled HMRC’s Check Employment Status for Tax (CEST) tool, finding that a contractor was self-employed and should not have had IR35 applied to his engagement.
Mr Elbourn worked for the Met Office through an employment agency, Qualserve Consulting Ltd. He appealed to the employment tribunal for unlawful deduction of wages on the basis that employers’ National Insurance contributions should not have been deducted from his pay rate, as per off-payroll rules.
Although he lost his appeal because he was found to be self-employed and therefore IR35 could not be applied to the engagement, by securing legal proof of his employment status, he was able to prove that around £9,500 was wrongly deducted from his pay. This is because the end client and agency treated him as ‘employed for tax purposes’ under the off-payroll rules.
Despite a CEST assessment finding Elbourn within the scope of the IR35 rules, Judge O’Rourke concluded: “He [Elbourn] was given a project and, apart from a weekly meeting to check on progress, he was his own master.”
“This case marks a hammer blow for HMRC,” comments ContractorCalculator CEO, Dave Chaplin. “CEST’s accuracy has once again been called into question, in a case where the contractor’s self-employed status was never in doubt.
“Moreover, the case has presented thousands more contractors, who have been overtaxed due to off-Payroll, with a straightforward means of recouping what is rightfully theirs.
“Bizarrely, in this case, even though the client had decided using CEST, that he was a ‘deemed employee’, they then put up a defence claiming that he was in fact self-employed. Whatever the Judge decided Elbourn would effectively win. Either he would be found outside IR35, or be found to be an employee or worker, in which case the employers NI would have been an unlawful deduction,” said Chaplin.
He goes on to explain that end hirers are not always well informed enough to make accurate status decisions, especially given that HMRC encourages end hirers to overlook individual contract and working practices.
“Though HMRC continues to champion CEST’s accuracy, we now have the first of what I expect to be many cases where a Judge makes a status decision that contradicts CEST. This case adds to the mound of evidence already available demonstrating that HMRC’s tool is woefully inaccurate,” adds Chaplin.
Martyn Valentine, director of IR35 specialists The Law Place, told Contractor Calculator: “This should serve as a stern warning to clients and agencies who are happy to enforce incorrect tax treatment on contractors, and who fail to carry out a proper status assessment.”
