IR35 status consultancy IR35 Shield says that it has uncovered fundamental flaws within HMRC’s Check Employment Status for Tax (CEST) tool. CEST is used to determine worker employment status, check if a worker is self-employed or employed and whether IR35 rules apply to contracts.
IR35 Shield says it uncovered the flaws while examining CEST’s underlying programming code in the wake of a recent Court of Appeal case, which was lost by HMRC. The IR35 case HMRC vs Atholl House Productions Ltd (the limited company of presenter Kaye Adams) dealt a major blow to the tax authority’s view of how IR35 status should be determined.
IR35 Shield examined the legal arguments made in the case alongside the CEST source code, with the findings being described as “unequivocal”. The CEST source code, version 2.4, was released in November 2019, just five months before the original IR35 implementation date of April 2020 for the private sector. As a result of COVID-19, this implementation was delayed for a year, but the CEST tool was not upgraded.
Presenting the findings in a webinar, IR35 Shield CEO Dave Chaplin said: “Until recently, I’d not looked at the source code since version 1.5.1 and had accepted in good faith that the flaws in the original version had been probably resolved. This was not the case, and the market was duped. CEST was fudged and lulled users into a false sense of compliance.”
“In the vast majority of cases, when CEST determines outside IR35, it has not conducted a proper multi-factorial assessment, as the Court of Appeal ruled should be done. Instead, it has relied upon what I term a ‘unicorn assessment’ – whereby CEST prematurely identifies a contractor as “Outside IR35″ based on unrealistic and easily challengeable criteria. This offers no protection for hirers and leaves them significantly exposed.”
The webinar detailed how CEST algorithm files show that “outside IR35” determinations are based on a small set of questions which are described as “unrealistic”. CEST then reportedly ignores other answers without full assessment. As a result, Chapman says, some users are relying on “outside IR35” determinations which are likely to be challenged by HMRC.
