In HMRC

The leading tax advisory service for contracting professionals, Qdos Contractor, has again warned employers that using HMRC’s online IR35 assessment tool, CEST, is a serious risk because of its unreliability. It has instead urged them to engage IR35 specialists to assess each individual contractor’s status on a case by case basis.

The warning follows a call to private sector businesses from Qdos last month, urging them to begin case-by-case preparations now with IR35 specialists ahead of the likely roll-out of the controversial off-payroll tax avoidance rules, so that their contracting talent receives proper, accurate IR35 determinations.

Qdos Contractor’s Benedict Smith noted that there was frustration among the UK’s professional contracting community at the government’s continuing claims of a CEST-delivered IR35 “victory” in last year’s public sector reform, which he described as “shambolic.”

As Smith notes, the contracting community has expressed “huge concern” over the accuracy of the tool, yet the government remains “blinkered” about its quality. This over-confidence re-emerged last week, when SNP MP Martyn Day pressed HMRC’s Mel Stride on whether he will prioritise a review of the online instrument.

Stride’s reply made no mention of any of CEST’s obvious failings, principal amongst which – according to experts – is its over-reliance on the right of substitution being present. Instead, he defended the tool, repeating HMRC claims that it had been tested against known and settled case law cases and gave accurate answers in 85% of uses. HMRC, he said, “will stand by the result given unless a compliance check finds the information provided isn’t accurate.”

Smith writes, “But contractors have heard this standard response before, and many will find it just as unsatisfactory as the previous statements made by Mel Stride and HMRC.

“After all, how long might a public sector contractor be made to work inside the rules before an IR35 compliance check proves the CEST tool to have made an inaccurate decision?”

Last August, The Telegraph referred to research from specialist IT recruiters CW Jobs, which found that the impact on contracting professionals of being forced into an “inside IR35” designation is hardly negligible. 71% of its clients had seen significant reductions in their incomes since the reforms were introduced last April, with a quarter of those affected reporting reductions of around 30%.

Mr Stride did, however, commit to working with HMRC’s customers to enhance the service although Qdos believes he has missed the point. As Smith puts it, “If HMRC is serious about making CEST more reliable and improve its poor reputation among the UK’s independent workforce, it surely has to allow contractors to put forward their case for working outside IR35 in the public sector too.”

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