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Is HMRC's IR35 tax tool up to the job?

5 February 2019

Is HMRC's IR35 tax tool up to the job?A Freedom of Information request has revealed that the controversial Check Employment Status for Tax (CEST) tool has not been formally tested by HMRC.

The FOI request has been made by contracting expert ContractorCalculator. It has learned that the CEST tool has not undergone any formal testing to check its accuracy even though it was introduced almost two years ago. HMRC and the Treasury have said that the tool has been under constant review.

HMRC has also admitted that CEST has not even undergone an informal assessment to ensure that it meets the government's Digital Service Standards, used "to check whether a service is good enough for public use".

The CEST tool decides whether a contractor working for a public sector client should be taxed as a freelancer or as an employee. It is part of the government's off-payroll working (IR35) rules. Since the introduction of the CEST tool, many self-employed workers have seen their tax status change. The government intends to apply the new rules to private sector contractors in 2020.

HMRC is facing increasing scrutiny over the design and development of the tool, which is believed to have already forced thousands of public sector contractors into "false employment", says ContractorCalculator.

Last week, BBC heads revealed that 95% of freelancers were deemed employed following a CEST assessment - despite the fact that 90% of those same workers had been deemed self-employed in a previous employment status test developed in conjunction with HMRC.

Dave Chaplin, ceo and founder of ContractorCalculator, said: "HMRC imposed CEST upon the public sector and by doing so has cheated many honest taxpayers out of thousands of pounds in the process with a tool that is not fit for purpose and does not work.

"HMRC has pledged to work with stakeholders to improve CEST but the reality is that it has not been working on the tool and has continued to issue tax bills off the back of faulty results. It will be interesting to see what enhancements HMRC is planning to make in preparation for rolling out Off-Payroll into the private sector. HMRC is setting itself up for a colossal fall and more worryingly will be playing havoc with the livelihoods of thousands of hard-working freelance professionals."

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