Independent employment tax adviser
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NHS Digital tax bill: Is the CEST tool on life support?

A note on the NHS Digital accounts states that the organisation faces a tax liability claim in excess of £4m for the misuse of the CEST tool. Is this hard evidence for those who believe CEST is not fit for purpose? Alastair Kendrick outlines the arguments.

20th Nov 2019
Independent employment tax adviser
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Ambulance driving in winter
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NHS Digital’s Annual Report and Accounts for 2018-19 revealed a £4.3m tax bill after HMRC challenged a number of IR35 status assessments produced by the tax department’s own Check Employment Status for Tax (CEST) tool.

Whilst we do not know the full facts in the NHS Digital case, in my experience, engagers have identified ways of achieving favourable CEST results. If this is looked at on review by HMRC, the picture painted often does not 100% reflect the terms of the actual engagement.

It is important engagers have procedures in place to ensure that the CEST is not abused. In statements made by NHS Digital after the tax bill revelations, it appears the organisation has introduced such steps now. Sadly, it is still exposed for the period before.

When the public sector went live with the IR35 changes in April 2017, there was significant pressure applied by contractors, agencies and intermediaries on those making the CEST test in the public sector body. In my view, this pressure led to many bending to accept IR35 was not applicable even when it was. This often was because the agency/intermediary had told the worker the contract would be outside of IR35 when the client using the CEST tool rules otherwise. 

I am very concerned we will see the same happen when the changes hit the private sector in April 2020. It seems to me that it is totally unacceptable that HMRC has walked away from protecting engagers and agreeing to deal with disputes. In my view, if such a process was in place and used by NHS Digital, for instance, then they would have avoided this claim. It would stop some of the nonsense I have witnessed.

I think the announcement about this decision is a reminder to the public sector and those preparing for the changes to the private sector to ensure their processes and procedures are robust.

Use of the CEST test should be undertaken based on the terms of the working arrangement and not influenced by the attempt to avoid IR35 applying.

I also feel that those charged with the CEST testing should be safeguarded from the pressure applied by the intermediaries and if necessary engagers should recruit a firm of tax specialists to support them in the process and minimise any exposure.

The proposed changes to the IR35 process in April 2020 include a set process for dealing with complaints to the CEST test results. Clearly we have been told that HMRC is working to improve the CEST tool and we eagerly wait to see what they produce.

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