The Financial Secretary to the Treasury, Mel Stride, has been taken to task by a leading tax advisory consultancy for contracting professionals after telling the House of Commons that, despite voluminous evidence to the contrary, HMRC’s Check Employment Status for Tax (CEST) tool was reliable and accurate.
Mr Stride made his comments to MPs last week in reply to questions about the tool’s accuracy, stating that it had been “rigorously tested throughout development” in line with Government standards before it was released. The tool’s accuracy, he insisted, had been thoroughly checked during development, with results tested by HMRC against existing case law and settled cases.
He added: “HMRC will stand by the result of CEST, provided the information entered is accurate and in line with HMRC guidance. CEST gives an answer in 85% of cases, and where it does not, people can call a dedicated HMRC helpline staffed by specialists who can give them further advice.”
Kate Cox of contractor tax specialists Qdos Contractor, however, exposed significant omissions in Mr Stride’s assurances. For one thing, the tool does not assess Mutuality of Obligation (MoO), even though it featured prominently in the deliberations of the recently published list of tax cases HMRC released. As Ms Cox noted, this undermines HMRC’s presumption that MoO exists whenever a contract is in place.
Case law indicates that this cannot be assumed. Cox cites the case of First World Software vs HMRC from 2003 when Special Commissioner Dr A. N. Brice noted that there was no arrangement in place obliging the engager, Reuters, to provide any other work for the contractor, Mr Atkins, beyond the specific task he had agreed to work on (facilitating the migration of its human resources and payroll systems). If the project had been terminated, Reuters would have simultaneously terminated Mr Atkins’ engagement.
Moreover, Cox observes, CEST had not been tested against the most recent Tribunal cases brought by HMRC, including CAM Ltd and Jensal Software and MDCM Ltd, all of which it has lost. In fact, the most recent case in which CEST was actually tested at tax tribunal was heard in 2011 (ECR Consulting), long before the public sector IR35 reforms.
To date, HMRC has not explained why they selected the tax cases they did for publication and why CEST has not been tested against other “hugely significant” cases. As Cox puts it: “perhaps testing against these particular cases would provide the information HMRC does not want us all to see”.
She concludes by urging contracting professionals and end engagers not to rely solely on CEST, which is not obligatory and to seek independent expert advice.