Buried away on page 103 of NHS Digital’s Annual Report and Accounts is the admission that NHSD has been levied with a £4.3m fine (including penalties and interest) in relation to incorrect IR35 determinations made between April 2017 and December 2018. What’s most disturbing about all of this is not so much the fine itself, but rather that fact that between the dates in question NHSD were actually using HMRC’s CEST tool to make their assessments. As the report confirms: “Up to December 2018, we assessed all contractors using the toolkit supplied by HMRC”.
Since January 2019, NHSD have stopped relying on the CEST tool and instead make an initial determination themselves (which may or may not be based on CEST – the report is not clear on this point), but that crucially now involves a back-up review by an external provider if their initial internal review suggests outside of IR35 status.
This episode should act as a stark warning to all those private businesses faced with the prospect of making IR35 determinations when off-payroll goes live in the private sector in April 2020. You might be tempted to use CEST as it’s the most well-known tool on the market. After all, why would the uninitiated layperson think to question the integrity of the taxman’s own tool when it comes to determining what taxes are due?! As is often the case, however, a bit of digging and things are not always as clear-cut as they first appear.
So what can we deduce from this unfortunate incident? Its seems to us that we can draw the following conclusions:
- The HMRC “toolkit” is either flawed in terms of its ability to make determinations, or else it’s not particularly clear on how it should be deployed or what other due diligence end-user clients should be carrying out to shore-up a CEST result. The obvious limitation of CEST in regards to the former is its appreciation of “Mutuality of Obligation” which is fundamentally at odds with established case law. It is worth pointing out that CEST does not encompass any form of contract review into its decision-making process. This leaves open the possibility of CEST reaching a determination that wouldn’t have been reached if a more thorough investigation of both working practices and contractual terms had been carried out.
- In practise, HMRC will not necessarily stand by their tool, because they always have the ability to say “we’ll challenge our tool result if we believe you’ve arrived at that result due to the way that you’ve improperly used the tool” which is to basically say that they’ll stand by their tool result as long as they agree with the tool result!
- Insuring yourself & your supply chain is an absolute necessity. Needless to say, IR35 insurers will not go near insuring a CEST determination for precisely the reasons outlined in conclusion 1, above. It is vital therefore that if you feel compelled to use CEST, that you do as NHSD are now doing and back this up with a more thorough (and insurable!) process.
About Liberty Bishop Assure…
Liberty Bishop Assure is an insurance-backed IR35 assessment and workflow management platform. It gives clients an easy to use tool in order to make status assessments and pass Status Determination Statements through to relevant parties in the supply chain. Contracts are reviewed as part of the overall process to ensure a suitable contractual foundation for outside of IR35 determinations reached the level of the actual working practices. The tool can be white-labelled under a recruitment agencies own branding to enhance their standing with their clients, and Liberty Bishop can also enter the supply chain to take on fee-payer responsibilities for those agencies uncomfortable with carrying the fee-payer obligations themselves.