‘Unsurprising’ £4.3m tax bill hits NHS for botched IR35 status results via CEST

The taxman has hit the NHS for £4.3million because it got its contractors’ IR35 status wrong, even though it did so using his own CEST --  a tool he once suggested is usually always right. 

In an accounting update, NHS Digital says that owing to its use of the “toolkit” from April 1 2017 to December 31 2018, it must create a £4.3m accrual to cover tax, interest and penalties.

“This isn’t a surprise,” says Charlie Cox, commercial manager at recruitment giant SThree.

“Too many contractors got pushed [by NHSI] into the inside IR35 model [landing them with] a determination that they shouldn’t have had, ultimately resulting in the misclassification.”

Others may be surprised, though, because the Revenue has consistently said that except in the instances of false or incorrect inputs, it would stand by CEST’s results.

'Backtracked'

But widespread criticism of the tool, often stemming from it claiming it can determine IR35 status in 16 questions whereas an investigation asks over 50, have left those results in doubt.

And now, not just the results it seems, but what HMRC says about the tool itself.

“It looks like HMRC has, unsurprisingly, backtracked on its promise that it views [a] CEST [determination] as binding,” says Dr Iain Campbell, general secretary of the IHPA.

“A look at the caveats usually given by HMRC when saying this, reveals they claim they will view the result as binding if it is completed correctly.

“This of course means they reserve the right to disagree with any answers they please. [It also means] that their promise is actually nothing but lexical smoke and mirrors.”

'Distrust in CEST'

Online, contractor business insurance expert Dominic Johns spoke of a “distrust” of CEST by contractors. But in light of HMRC fining the NHS, organisations cannot be far behind either.

“Independent IR35 assessments are more reliable than CEST,” he said.

“[And] note [what the accounts imply --] that HMRC isn't disagreeing with the independent IR35 status reviews that NHS Digital has carried out.”

Johns was referring to the accounts update saying that since 2019 (a period free of the HMRC demand), NHS Digital said it changed tack to setting status via internal and external means.

'Lesson for the private sector'

At SThree, Mr Cox reflected. “The private sector can learn a lot from this. Blanket determinations don’t work, they cause a multitude of issues.

“The safest thing for a client to do is to [independently] accurately assess the contract workforce, take a pragmatic approach to the assignment determinations and engage with each contractor individually, taking reasonable care in the process.”

The Independent Health Professionals Association's (IHPA) Dr Campbell echoed: “CEST is a mechanistic approach of the type forbidden in case law. It cannot answer employment status questions. It is the wrong approach, misses key [IR35 status] tests, and could never…[be a substitute for] specialist tax advice.”

'We just want to help'

Responding to a ContractorUK reader’s IR35 petition this week however, HM Treasury sounded totally unshaken in its faith in the tool – even though it has agreed to make “enhancements.”

“HMRC are encouraging engagers to use the existing CEST, and they will stand by the decisions it makes,” HMT claimed on Monday. “For the more complex cases, customers are able to access detailed guidance or call HMRC’s dedicated helpline for one-to-one support.”

Asked about it stinging the NHS with a £4.3m tax bill, a spokesman for HMRC said yesterday: “We cannot comment on identifiable taxpayers.

“[But] we don’t want penalties, we just want to help organisations get the rules right. HMRC has put an extensive range of support in place to help businesses and other organisations get the status of the contractors they engage right.”