IR35 checking tool misses key test

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The tool, Check Employment Status of Tax (CEST), forms a key part of the procedure public bodies should follow to determine whether IR35 applies to an engagement.

Anger is growing in the tax agent community that the online CEST tool is not fit for purpose, as it doesn’t examine all the attributes of a self-employed relationship as set down by case law. This weakness was highlighted by Mark Taylor in his test run of the predecessor of CEST, the Employment Status Service (ESS) tool, in March 2017.

Assumed MOO

The main problem with the CEST is that it omits to check whether a mutuality of obligation (MOO) is present in the relationship between the engager and the worker. The MOO is said to be present where there is a sustained obligation for an engager to provide regular work for the worker, and for the worker to work those hours and be obliged to accept the work offered.

The MOO is one of the two irreducible minimums that needs to be established to assert that an employment relationship exists, and therefore whether IR35 applies. However, the CEST (and the predecessor: ESS) assumes that a MOO is present in all relationships which are tested.

Mark Frampton, HMRC policy advisor on IR35, told an audience of NHS Trustees on 29 September 2017, that HMRC assumes MOO is present in all public sector engagements. This is why questions about the MOO, a vital indicator of employment status, have not been included in the CEST.   

There is disagreement on whether the MOO does or does not exist in all public sector engagements. For example, where an NHS Trust can terminate the engagement immediately, which can be the case for many locum doctors and nurses, it could be said that no MOO exists. However, in the presentation by Frampton to NHS Trustees he said: “You are employed for a period of a shift or shifts in which you work and are paid for that. You are obliged to complete your shift yourself. All the ingredients of ‘mutuality of obligation’ necessary for a contract are present.”

Commenting on the NHS presentation, Dave Chaplin, CEO of ContractorCalculator said: “We have known all along that CEST does not align with case law and HMRC has, thus far, denied it. Now HMRC’s own head of policy has admitted that the tool makes assumptions that are factually incorrect and, more alarmingly, HMRC designed the tool to do so.”

No changes

HMRC admitted in the IR35 forum on 17 July that the CEST is still in public beta mode, but no further changes to CEST are envisaged. However, the minutes of the forum meeting confirm that CEST has wider application than public sector engagements. If CEST is changed in the future HMRC advised that the previous results from running CEST remain valid.

Around 450,000 relationships have been tested using CEST, which reaches a determination 85% of the time. If the CEST does not produce a result the engager is advised to contact the HMRC IR35 helpline or read the further guidance HMRC has published.

HMRC has indicated that more guidance concerning the operation of CEST will be published, and that it will set up a review process hotline, for when the worker disagrees with the CEST outcome. However, there is no timescale for the delivery of either of these developments.

Pressure on public sector

The NHS has been pressured to use CEST on all off-payroll engagements as HMRC has said it will only recognise assessments conducted via CEST. Dave Chaplin commented: “HMRC has appointed itself judge and jury on matters of employment status when it does not have the powers to do so, and is now leaving itself wide open for judicial review. They have now been caught contriving their own version of the law to wrongly catch locum doctors and nurses with its flawed status tool.”

About Rebecca Cave

Consulting tax editor for I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.


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03rd Nov 2017 00:04

I have one right now re a Qualified Person, he does multiple engagements for pharma companies, in effect auditing batches, he might go to client, spend 2-3 days at most, sign report, do another somewhere else in world, repeat over and over, then return to trust later in year for say another 1-2 days to do similar re different batch; the role is akin to an auditor, carries PI cover and screeds of regulation.

As part of his client list (20-30 entities) he has done a couple of NHS Trusts, maybe 2 days then 3-6 months then another 1-2 days, these are all discrete engagements, possibly 4-5 days in a year per Trust.

Currently one NHS Trust is arguing , from their "tests" that this is within IR35, it evidently is not, it is like saying that PWC ,running their internal audit function, is within IR35. ( Years ago a firm I was with attended at a government entity each month doing internal Audit function, we were cheaper than in house, two of us for 1-2 days a month)

So what will happen, well right know the Trust looks like it is going to get told to stuff it, the fees are maybe in a year about £2,000 in total per Trust, in the scale of the business (80% of turnover from rest of world) they look like they are going to become more trouble than they are worth, so given not that many QP qualified in the UK either they find one who will play ball or they can get an employee to twiddles his thumbs most of the year and pay him £60-£70k per annum plus all his CPD costs etc.

This is all a farce.

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By cfield
06th Nov 2017 10:55

Sounds like this is being dealt with by a box-ticker. If your client really does have such rare skills, he should escalate this in the Trust as high up as it will go. The managers with the real say probably aren't even aware of it as they delegate such matters to their minions.

To be honest, MOO is a bit of a red herring as for 99% of contractors it almost certainly does exist. Remember, it can exist within an individual assignment. MOO does not cease to exist simply because the client is under no obligation to extend the contract or to provide further work.

However, if they can send you home without any pay or notice due to computer downtime or other such reason, then there might indeed be no MOO. There was an IR35 case a few years ago (Spencer I think) where that was a factor.

The ESS was actually quite forgiving as you could avoid IR35 just by claiming control of the work. The problem of course was persuading the client to a) assess you individually, b) use the ESS, and c) agree with you.

I haven't run through the CEST yet so not sure if that is still the case, but assuming it is, contractors should be proactive and present their clients with their own CEST results rather than waiting for their client to inform all their contractor staff how they intend to play it.

Speakers at Accountex this year were fully expecting the new IR35 rules to be rolled out to the private sector in the very near future and this prospect was mooted in the Telegraph a couple of weeks ago. We can only wait and see what is in the Budget on 22 November.

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to cfield
07th Nov 2017 10:19

cfield wrote:

Sounds like this is being dealt with by a box-ticker. If your client really does have such rare skills, he should escalate this in the Trust as high up as it will go. The managers with the real say probably aren't even aware of it as they delegate such matters to their minions.


It has gone as high as the head of the research team it is for (it is sign off re a batch of radioactive isotope used for research purposes), whilst he is supportive re my client's position he cannot get past the immovable object that is the accounts team; them is the rules, is the rules .

I would not say people with Qualified Person status are rare but they certainly are not plentiful.

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By cfield
07th Nov 2017 10:37

Can't he go above their heads or is his job not worth it?

Perhaps your client could write to the Chief Executive of the Trust himself, or someone else with the power to over-rule the box-tickers if he can get hold of a name.

Money is usually fairly persuasive, especially in these cost-cutting times. If he can make out a good financial case, I'm sure strings can be pulled.

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06th Nov 2017 10:48

I can't get my head round why HMRC has become such an incompetent organisation. I have witnessed the slow decline towards incompetence for 48 years because my first interactions with the Inland Revenue were in 1969. I think the rot set in around the turn of the century. But I don't really understand why this has happened. Is there anyone who has worked in the IR/HMRC and witnessed the decline from the inside who would be willing to offer an explanation?

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By cfield
to C.Y.Nical
06th Nov 2017 11:00

It's because they got rid of their most knowledgeable staff to save money, automated everything in sight and lost all local knowledge by centralising their operations. The merger also probably had a lot to do with it.

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06th Nov 2017 10:58

Mutuality of Obligation is controversial because so many judges have commented on it without any definitive statement of what it is. Is it an essential of the employment relationship - the obligation of an employer to provide work for an employee to perform to receive reward? If so then zero-hours contracts do not contain mutuality in that sense. Or is it present in EVERY contract of every type - simply the matching existence of offer acceptance and consideration passing from the promisor to the promisee? You can find judicial precedent for both of these approaches and if the second is taken as a characteristic then there would always be MOO in every example that CEST is asked to rule on.
On the other point, the evident decline in effectiveness of HMRC taking place around the millennium this was when HMRC was created from the merger of IR and C&E - look up the number of jobs lost resulting from the merger - 4,000 from C&E but a huge 14,000 from IR - C&E seemed to get the upper hand - explains a lot?

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19th Nov 2017 12:05

I left the IR just before the merger but senior colleagues reported afterwards that line managers were introduced from Customs who had no technical knowledge at all and were incapable of giving effective leadership. In the 90's the focus was on re-inventing taxpayers as customers. Every month the number of unanswered letters received more than 14 days earlier had to be counted. Fifteen years later it became impossible to get a reply to a letter sent in months before. At least there is the comfort of knowing the drive against tax avoidance has been such a huge success.

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