Trust in HMRC’s ability to stick to its IR35 assessments has dropped amongst hiring firms since the new rules were brought in last April (2021).

The online tool created by HMRC – CEST, which stands for Check Employment Status for Tax – allows hirers to input information about a role and find out the status of the contractor they are hiring. The tool produces a type of certificate that states whether the individual is inside or outside IR35.

On its site HMRC says: “HMRC will stand by all determinations given by the tool, as long as the information you give remains accurate.”

Loss of trust in CEST

However, a survey has found that there are more contractors being assessed using other methods as firms have lost faith in its accuracy and this is not the first time the CEST tool has been criticised as ‘not fit for purpose’.

Even HM Courts and Tribunals service was given a £12.5 million fine for falling foul of the rules last August.

IR35 Shield, which has been researching and assisting firms on the subject since 2007 and occasionally advises HMRC, says because of the way the implementation of the new off-payroll workings were carried out, “firms have lost experienced talent and the Treasury has lost out on tax.”

The company says this because since the off-payroll legislation came into effect, a significant amount of experienced flexible workers left contracting to either having no jobs or secured a permanent role, leaving them financially worse off and therefore generating less tax for the Treasury.

However, the survey does show that firms have started to use other tools, more accurate than CEST, created by companies set up to clarify off-payroll rules, which has meant a drop in blanket bans for contractors outside IR35.

Comment on the findings

Dave Chaplin, CEO of IR35 Shield said there is positivity on the horizon: “Despite the IR35 earthquake, we are seeing green shoots of recovery emerging, both for contractors and the firms that hire them.  The levels of blanket bans are decreasing and the use of specialised assessment firms is increasing.  The number of firms using HMRC’s Check Employment Status for Tax (CEST) tool is also on the decline, as trust in its accuracy is virtually non-existent.”

Most concerningly from the survey, however, is that 57 percent of contractors say they do not know what a Key Information Document (KID) is, despite it being a legal requirement for them to be provided with one. The KID is designed to show transparency on aspects such as pay and has been in place since April 2020.

Meanwhile, 60 percent of contractors said working inside IR35 was not financially viable, and 73 percent said they were worse off. However, 74 percent said they would move back to contracting if they could secure an outside IR35 contract.

Mr Chaplin comments that the protection the CEST tool is supposed to provide gets a 4 percent vote of trust from hiring firms, because HMRC in his opinion, does not abide by its non-statutory promise to stand by the results that CEST gives.   

He said: “The drop in use is perhaps due to the multiple government bodies who used CEST and followed HMRC’s guidance but who are now facing combined tax bills and fines of some £250 million.”

“Firms are realising that blanket measures are not in their best interest as they lose out on the best talent.  Firms that adhere properly to their compliance obligations can confidently navigate the new legislation without fear that HMRC will challenge them. UK plc and the UK economy stands or falls without the support of flexible talent and the contracting workforce has a vital role to play.”

When contacted for comment, an HMRC spokesperson said: “HMRC will stand by CEST’s results provided accurate and correct information is used, in accordance with our guidance. The tool was rigorously tested against case law and settled cases by officials and external experts.”