HMRC’s widely criticised IR35 tool fails to deliver an answer 20% of the time
Damning new CEST usage data has revealed that HMRC’s IR35 tool delivered 210,100 indeterminate results in an 18-month period, which raises further questions about how well equipped it is to help businesses determine IR35 status.
The government figures explore the performance of the Check Employment Status for Tax (CEST) tool, between 25th November 2019 to 21st May 2021. During this period, CEST was used 1,018,250 times to help determine if a contract belonged inside or outside IR35.
However, in as many as 20.6% of cases (210,100), this IR35 technology wasn’t able to provide an answer, leaving hundreds of thousands of contractors ‘in limbo’, as our CEO, Seb Maley, explained to The Register.
The data also shows that 499,974 (49.1%) of cases were considered outside IR35 in this period, with the remaining 308,176 (30.3%) deemed inside the scope of the legislation.
Data exposes just one of tool’s many flaws
Following the introduction of IR35 reform, medium and large businesses (and public sector bodies) are responsible for assessing the IR35 status of contractors. In the lead up to public sector IR35 reform in 2017, HMRC released CEST to support organisations with their new obligations.
However, the tool has been widely criticised since its introduction. This is because it overlooks crucial aspects of the IR35 legislation (such as Mutuality of Obligation), has been dismissed in numerous IR35 court cases and fails to deliver an answer all of the time.
The latest figures published by HMRC expose CEST’s flaws one again, with the number of inconclusive cases increasing marginally (from 19% to 20.6%) when measured against previous data.
CEST causes delays, confusion and non-compliance
When focusing on CEST’s indecisiveness, one question that must be asked is what has happened to these 210,100 engagements?
The tax office provides further help to businesses where CEST can’t provide an answer, but as our CEO pointed out to The Express, “have HMRC got the resources – not to mention expertise – to offer support on this scale?
“The staggering number of undetermined results leads to confusion, delay and in many cases, non-compliance.”
49% outside IR35 is at odds with Qdos data
On one hand, that nearly half (49.1%) of engagements put through CEST were deemed outside IR35 could be seen as positive. On the other, given the tool relies heavily on the right of substitution, there’s no clear way of telling if these decisions are accurate.
This statistic also sharply contrasts with the data collected from the Qdos Status Review facility. When supporting over 2,800 businesses with their IR35 processes, 86% of more than 32,000 contracts have been determined outside IR35 following a rigorous, independent and expert assessment.
HMRC’s IR35 tool is not mandatory
Taking into account CEST’s flaws – which we have focused on in detail here – it’s important that businesses are aware that its use is not mandatory. IR35 status reviews carried out by specialists, such as Qdos, also ensure reasonable care has been met and are widely considered a far more accurate measure of IR35 status than CEST.
Through a range of award-winning IR35 services, Qdos supports over 2,800 organisations with their IR35 compliance. To learn more about how we can help you manage IR35 reform, please email firstname.lastname@example.org or call 0116 478 3390.