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The effectiveness of Check Employment Status for Tax (CEST) has been subject to debate since its release, with many thinking it was not fit for purpose.
At a recent Parliamentary Committee hearing into potential uses and abuses of the contractor business model at the BBC, it was revealed that CEST had failed 97 per cent of BBC broadcasters who had used the tool, prompting Jolyon Maugham QC to dismiss HMRC’s efforts at trying to achieve an 'impossibly difficult' task.
Online publication, ContractorCalculator, has now detailed how HMRC could not prove CEST’s effectiveness despite them having consistently claimed it as a success, with Mel Stride, The Financial Secretary to the Treasury, alluding to the impact of reform and the tool late last year:
“Early analysis of tax receipts between April and June shows that around 90,000 additional new engagements occurred in the public sector above the level that would normally be expected. This indicates more individuals are being taxed as employees since the reforms, and is consistent with the Government’s expectations that the reforms would increase tax compliance in the public sector.”
Stonewalled
However, following a series of Freedom of Information (FOI) requests by ContractorCalculator, HMRC has admitted it has no detailed proof to demonstrate that its CEST tool is accurate.
This could mean that more than 100,000 people could be facing incorrect tax bills.
ContractorCalculator claims that HMRC has stonewalled a series of requests for evidence and information from but finally responded to say that the taxman holds no detailed test data at all: “The CEST tool testing was done by a workshop…..The only documented output of the workshops is the set of rules used by the tool.
“Our records show that HMRC has used the CEST tool to test all the cases cited in your request, but we do not have a record of how each question was answered as part of the testing, only the end determination.”
Slapdash
ContractorCalculator said it was poised to call for urgent inquiry by the Public Accounts Committee into HMRC’s conduct following this discovery.
Dave Chaplin, from ContractorCalculator said: “I am incredulous that a fundamental piece of the CEST jigsaw is missing. For a tool of such importance, the lack of rigour involved in its testing methodology is astonishing. You have to wonder if HMRC has shredded any evidence to cover up CEST’s shortcomings?
"HMRC publicly claimed that the CEST tool gives the right result provided the correct answers are entered into the tool but have chosen not to document any of those answers used during their testing process.
"There is a very simple way they can resolve this challenge - just publish the results of the 23 court cases, as put through CEST and prove their claims.
“HMRC has taken a slapdash approach to building a tool that is clearly not fit for purpose, has not been tested properly and is missing important case law. HMRC tells us that it intends to release more information in April, so it will be intriguing to hear what HMRC has to say in its defence, a defence that seems to be unravelling as we learn more. People’s lives and livelihoods are in tatters, not just at the BBC, as has been widely reported, but in other public services too.
"By forcing false employment upon people, HMRC could now face tens of thousands of claims for tax refunds and we won’t know what the scale of this is likely to be until January 2019 next year. Could this be HMRC’s PPI scandal? It’s even more appalling that HMRC wants to roll-out to the private sector the very same IR35 rules that have caused this chaos in the public sector. HMRC has significantly fallen down on its duty of care to businesses and tax payers.”
Expect answers
Contractor tax specialist, Qdos Contractor, has now questioned the reliability of the 400,000 answers it has provided since its release.
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“Just last week, HMRC lost an IR35 case, which suggests they have trouble understanding the complexities of the legislation themselves. That HMRC designed and built CEST, the very tool for which the IR35 status of potentially two million workers could rest on, is of huge concern.
“These reports strengthen the need for a thorough investigation into the accuracy of CEST. Additionally, our sector will expect answers as to why the tool looks to have been built in such a manner. If the shoe was on the other foot, one would expect HMRC to leave no stone unturned.”
A recent survey by Qdos showed that more than four in five contractors would be deterred from working with a client or through an agency if CEST was used to set IR35 status.
For more information about the controversial public sector tests and rules; and other aspects of IR35, see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2018
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