Ir35 (1)
  • Publish Date: Posted almost 2 years ago
  • Author:by Grant Nisbet

The real cost of IR35... a guest blog from Liberty Bishop

​An interesting blog on the latest onIR35from our partner, Liberty Bishop.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 ofIR35status.This episode should act as a stark warning to all those private businesses faced with the prospect of makingIR35determinations 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 lay person 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? It 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 practice,HMRCwill 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,IR35insurers 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 asNHSDare now doing and back this up with a more thorough (and insurable!) process.About Assure…Many people are struggling to fully grasp the implications of the impending changes toIR35and are understandably anxious to avoid the penalties for making an incorrect determination.   Jonathan Lee can work with you to ensure that you not only understand how to make a correct determination and what the implications of the key questions are for both you and the contractor, but also to offer a solution that is underwritten by insurance to give you peace of mind.​What is it?Assure is an IR35 status determination assessment tool that provides a definitive, accurate assessment. It is also underwritten by insurance to mitigate your risk. The tool also satisfies Status Determination Statement (SDS) requirements to evidence determination and share the SDS with all parties in the contractual chain.  It better aligns to established case law than the HMRC tool (known as CEST – Check Employment Status for Tax) meaning that it produces more realistic results.  ​​Why use it?​​​​Underwritten by insurance​​Satisfies Status Determination Statement (SDS)​​Quick and easy to implement 

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​An interesting blog on the latest onIR35from our partner, Liberty Bishop.

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 ofIR35status.

This episode should act as a stark warning to all those private businesses faced with the prospect of makingIR35determinations 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 lay person 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? It 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 practice,

    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 Assure

Many people are struggling to fully grasp the implications of the impending changes toIR35and are understandably anxious to avoid the penalties for making an incorrect determination.   Jonathan Lee can work with you to ensure that you not only understand how to make a correct determination and what the implications of the key questions are for both you and the contractor, but also to offer a solution that is underwritten by insurance to give you peace of mind.

What is it?

Assure is an IR35 status determination assessment tool that provides a definitive, accurate assessment. It is also underwritten by insurance to mitigate your risk. The tool also satisfies Status Determination Statement (SDS) requirements to evidence determination and share the SDS with all parties in the contractual chain.  

It better aligns to established case law than the HMRC tool (known as CEST – Check Employment Status for Tax) meaning that it produces more realistic results.  

Why use it?

tick

tick

Underwritten by insurance

tick

Satisfies Status Determination Statement (SDS)

tick

Quick and easy to implement