back to article HMRC tool for measuring IR35 status is so great, employers are ditching it in their droves

The number of independent UK contractors assessed with the government's controversial CEST tool has fallen, according to a survey published today. The survey of 3,750 contractors, conducted by tax advisors IR35 Shield in November 2021, showed 49 per cent got their IR35 assessment using tax authority HMRC's recommended tool in …

  1. elregidente

    CEST and MOO

    In court cases, one of the most important considerations with regard to employment status is "Mutuality of Obligation" - whether or not the employer is obliged to provide more work, and the worker obliged to accept.

    For an employee this is true, for a contractor it is not.

    The CEST tool *assumes* mutuality of obligation is in place.

    Case completely, utterly and totally unfit for the purpose of determining employment status.

    It is however completely fit for what I cannot help but think is its real purpose, which is to classify as many people as possible as employees, to literally scare them into tugging the forelock and handing over that much more of their pay in tax.

    1. Blackjack Silver badge

      Re: CEST and MOO

      And without any employee benefits!

      1. sabroni Silver badge

        Re: And without any employee benefits!

        Oh, is that not the choice you make when you decide to structure your tax arrangements like this?

        I thought that's why you needed all that extra money, because you knowingly opt out of employee benefits (or rather, your company of one is too tight to provide those benefits to it's sole employee).

        Oh, we want to have it both ways, but get upset when we get it both ways!

        Cry me a fucking river.

        1. Robert Grant Silver badge

          Re: And without any employee benefits!

          If you read the parent comments you'll see that this situation removes the advantage of being a contractor, so there's no tradeoff. They're classified basically like an employee, but without benefits.

        2. The Oncoming Scorn Silver badge
          Holmes

          Re: And without any employee benefits!

          "knowingly opt out of employee benefits"

          Because that's sometimes the only way you can get work, as the employer\customer\client doesn't want to hire permie staff as engaging a MSP, who then engages a contractor(s) via a agency(ie's) is somehow cheaper to the bean counters, than engaging new permies, paying a liveable wage & providing benefits.

    2. Mike 137 Silver badge

      Re: CEST and MOO

      "one of the most important considerations with regard to employment status is "Mutuality of Obligation" - whether or not the employer is obliged to provide more work, and the worker obliged to accept."

      In the case of Northern Lights v. HMRC, the latter attempted to argue that agreement to do the work in return for getting paid constituted "mutuality of obligation".

      The bottom line is that HMRC want everyone to be on a PAYE contract of service as it makes HMRC's life simpler - particularly as they seem to have problems administering their own rules much of the time. However the problem with IR35 is that it's not equivalent to a PAYE contract of service as it excludes the statutory benefits that accrue to one. It's essentially zero rights employment, and I have a horrid suspicion that that is the intended model for the future.

    3. Ian Johnston Silver badge

      Re: CEST and MOO

      For an employee this is true, for a contractor it is not.

      The CEST tool *assumes* mutuality of obligation is in place.

      Not my field, so please humour me.

      Is it perhaps the case the mutuality of obligation is necessary for an employee and it's absence necessary and sufficient for a contractor. In which case assuming it's there would be a reasonable starting point: "Is there a mutuality of obligation? If not, you're clearly a contractor and don't need to bother with this tool. If so, you might be a contractor and you might not, so tell us more about your situation."

      A bit like the the way "Do you need to call a doctor?" first aid flow charts always assume that someone has been hurt, because "Are you fit, healthy and not in need of assistance" would be a pointless first question.

      Or maybe it's just a cock-up.

    4. Anonymous Coward
      Anonymous Coward

      Re: CEST and MOO

      I was forced into IR35 by a large government department, then dumped six weeks after a renewal. Now I'm with another large government organisation, again under IR35 (yeh I know, should have learnt my lesson) and Parasol have gone bang after being hacked, so no money again eh?

      For 25 years it worked fine.

      My accountant was honest and straight and I paid taxes I owed, no fancy offshoring (like Tory MPs do) or wizard wheezes (like buying my own offices off my company an renting them back like The Hut Group) or not paying tax at all whilst smashing down local businesses (Amazon, Google et.al.)

      It clearly doesn't pay to be honest in this country, what a joke.

      1. Mr Dogshit

        Re: Parasol have gone bang after being hacked

        Tell me more

        1. Ahab Returns

          Re: Parasol have gone bang after being hacked

          https://twitter.com/parasolgroup/with_replies?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

          1. The Oncoming Scorn Silver badge

            Re: Parasol have gone bang after being hacked

            https://www.theregister.com/2022/01/14/multiday_it_systems_outage_whacks/

  2. Gonzo wizard
    FAIL

    Horribly broken - not by accident

    If the MoJ used the CEST tool and followed the accompanying guidance correctly, why should they be liable for incorrectly classifying their contractors? HMRC should be swallowing the loss and continue to do so while the individual contracts affected are in place. In that way there’s motivation for HMRC to fix both the tool and the guidance.

    Not that they will, this is all about providing deliberately incorrect results from CEST together with the threat that clients pick up the bill when they classify contractors incorrectly.

    Never forget that the law here hasn’t changed one bit. All that’s changed is that HMRC issue misleading assessments whilst telling clients they are exposed to a financial risk for every individual working outside IR35.

    1. Kevin Johnston

      Re: Horribly broken - not by accident

      The reason they were liable is that amazing structure by which errors in tax liability are the fault of the person who HMRC say owes the tax even if they have done exactly what an HMRC Tax Inspector told them.

      HMRC are somehow immune from being at fault unless a court says so and they strecth that immunity as far as it will go as they need to try to reach that magic tax income figure which is less connected to reality every year.

      1. Kubla Cant

        Re: Horribly broken - not by accident

        You'd think the Ministry of Justice would have the legal resources to challenge HMRC.

        1. dogcatcher

          Re: Horribly broken - not by accident

          They can't get the legal aid they need since they changed the rules.

  3. Anonymous Coward
    Anonymous Coward

    I went perm after 22 years of contracting. I could have continued contracting inside IR35 but the companies were making blanket assessments and getting them wrong. It was left to managers who were guided by KPMG. I don't blame the relatively low level managers for getting it wrong - it would take a brave one to go against KPMG advice even when they knew it was wrong.

    1. Gonzo wizard

      I’m clinging on

      I’m still working outside IR35 thankfully, but I’ve always said I’d take a perm role over one inside IR35. I’d like to actually have the benefits of being an employee and not just be taxed as one, thank you.

      1. Steve Button Silver badge

        Re: I’m clinging on

        That depends. If you are still taking home double the money, you can pay for your own benefits and still come out on top. You can put away a large nest egg to self insure against time off for illness, etc. (which is a bit of a risk at the beginning, but a no brainer once you have saved up a couple of months worth of money).

        1. sabroni Silver badge

          Re: I’m clinging on

          Downvotes for suggesting that contractors make enough to take care of their own benefits.

          Telling.

          1. Franco Silver badge

            Re: I’m clinging on

            Downvotes from me for the both of you are for blatant ignorant trolling.

        2. Gonzo wizard

          Re: I’m clinging on

          I could earn more as an employee, overall, taking benefits (pension, sick pay etc) into account. I prefer to choose who I work for, what I do and how many weeks of the year I work. It’s never been about cash in the bank for me, and it never will be.

        3. EnviableOne Silver badge

          Re: I’m clinging on

          you dont take home anywhere near double, if you read the rules right, and aren't being employed by someone who doesn't know the going rate, you end up with about the same money, a tonne of extra paperwork and a lot more flexibility in when and how you work.

          To some people this is important, to others, they are happy being Employees, where their pension, holidays, transport, tax, NI, student loans, employers NI, etc. are all taken care of.

          If you are outside IR35, you have no flexibility, no holidays, no pension, and you are basically left with the disadvantages of both situations.

    2. Natalie Gritpants Jr

      I'm still contracting. The latest gig is inside, and luckily I've gone from £60 to £75 per hour. It's just about the same net as I'm going to shovel 40% into my pension. It's 100% remote and it's just me doing the work, so it's an easy outside IR35 decision, but the company has a blanket ban. I told them I would take £60 outside, so they know what their HR departments rules are costing them.

      1. Warm Braw Silver badge

        How did you find the market when looking for your new gig?

        Anecdotally (according to friends and recruitment agencies) the contracting market doesn't seem to have recovered from the massive defensive terminations that followed the start of the pandemic despite an alleged shortage of qualified staff.

        I also seem to have noticed an increase in the number of jobs being offered "nearshore" for UK companies.

        Of course this may all be subjective/confirmation bias, but perhaps "status determination" is simply becoming too much of a hassle.

        1. Franco Silver badge

          Market isn't great where I am, lots of very obvious safe classifications on projects that should clearly be outside. The trouble for me is unless they are either fully remote or very local (and fully remote isn't likely to be a thing forever, plus one of the things I have done a lot of in the past is image building for desktop refresh projects, not something that can easily be done 100% remotely) it's not cost effective even if there is a slight lift in rates

        2. Kubla Cant

          At least part of the contracting market seems to be very brisk. My impression is that clients in the financial services sector have had to increase contract rates to cover the extra cost of contracts inside IR35. Either that, or my frankly run-of-the-mill skills have suddenly got much more valuable.

      2. Azamino

        Optional

        Paying salary directly into your pension is a great idea as it saves you both employers and employees National Insurance contributions. It is one way to keep more of your money when working via an umbrella company.

        Obviously this locks the cash away until you are ready to pull down your pension, but once you have passed your annual £7,500 NI allowance it will save you 25% in combined contributions plus your PAYE tax rate of 20% or 40%.

    3. 5n0wcha1ns

      I've worked for that company. a bunch of crooks. (this has been proven in various courts)

  4. dak
    FAIL

    CEST? A lamentably shoddy piece of work.

    I wrote a series of articles on just why CEST is a lamentably shoddy piece of work.

    https://www.linkedin.com/pulse/critique-hmrcs-foia-response-1-david-kirkwood-msc-miet?lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3BEFOl1yohSrWKtsjHZcs%2B6A%3D%3D

    In the next couple of weeks I will be returning to a client I left because of their IR35 blanket assessment. I will still be outside IR35, and earning more than I had been. The client will be paying a new intermediary about 50% more than in 2020 just to get me back.

  5. Tom 7 Silver badge

    I've not had a chance to look at the way IR35 is supposed to work

    but if experience is anything to go by it suggest that if its difficult to code for that probably because its inconsistent and contradictory.

  6. Pascal Monett Silver badge

    "just 5 per cent saying they thought CEST was accurate in the survey"

    I'm sorry but, as a freelance consultant myself, I can't help thinking that, if my customer satisfaction was 5%, I would be out of business and looking for a chance to flip fries at McDonalds.

    1. Kubla Cant

      Re: "just 5 per cent saying they thought CEST was accurate in the survey"

      True. But when it's a population who have lost money as a result of CEST, 5% is surprisingly high. Turkeys voting for Christmas.

    2. herman Silver badge
      Devil

      Re: "just 5 per cent saying they thought CEST was accurate in the survey"

      Is that why McD fries are so bad?

  7. DJV Silver badge
    Thumb Down

    Trust in [CEST's] accuracy is virtually non-existent

    Doesn't surprise me - it completely fails the "fit for purpose" label. I tried it out a couple of years ago and found it wasn't even possible to input all the relevant details about the way I worked. The result it gave for me was, as expected, completely wrong.

  8. Rich 2

    HMRC imposing tax penalty on MoJ

    What is the point of taxing a government department?

    1. Anonymous Coward
      Anonymous Coward

      Re: HMRC imposing tax penalty on MoJ

      Actually, it is pretty smart

      1. It is zero cost to government (internal transfer)

      2. HMRC knows that government departments will not challenge the decision in court. HMRC have an abysmal track record in winning cases.

      3. It gives “free advertising” to HMRC project fear. Causing doubt to business that are considering outside IR35 roles, as on the surface of it HMRC are seen to be clamping down.

      1. Phones Sheridan Silver badge

        Re: HMRC imposing tax penalty on MoJ

        Just a point on your number 2.

        HMRC love court challenges if they consider it an easy win, because it allows them to set a legal precedent without much work. Once a precedent is set via case law, it becomes much harder for everyone else then to fight it.

        IIRC HMRC don't take other government departments to court per se, but "someone" does ask for a judicial review which gives the same outcome. The judiciary would typically in this case, rule in favour of HMRC, because, well they are the government department that deals with tax, so they must know what they are talking about. This is very common where judges favour the government department that is responsible for a matter, over someone else who isn't.

  9. Roland6 Silver badge

    "and the use of specialised assessment firms is increasing"

    Don't see the value, on evidence todate, they can't give you any guarantee/protection from HMRC or better advice on what HMRC will deem to be inside/outside of IR35 than the CEST tool.

    1. Franco Silver badge

      Re: "and the use of specialised assessment firms is increasing"

      Indeed they can't, but at the same time (usually) if they've made an assessment for you it's part of their IR35 insurance offering, which means help paying the legal fees and expert advice (based on case law and precedent rather than HMRC's take, which is generally you owe us money) if you do go to tribunal. As usual only the lawyers are truly winning out of this.

      Most of the companies that offer insurance to contractors (Professional Indemnity and Public Liability) also now offer IR35 insurance alongside it, along with assessments of contracts.

  10. Charles Smith

    The pachyderm is dead and getting whiffy

    IR35 is a massive home goal. Increasing goverment costs for software development/maintenance whilst driving them more deeply into the clutches of large consultancies. All to satisfy the ego of HMRC. The elephant in the room is ignored despite the rot.

    1. Anonymous Coward
      Anonymous Coward

      Re: The pachyderm is dead and getting whiffy

      You are not wrong - one of the saddest parts of this is that *being an employee* of the big consultancies is kind of the worst of both worlds. You get many of the disadvantages of being a contractor (any training is in your own time, you have to deliver whenever the meter is running, treated like disposable part) with many of the disadvantages of being a permie (lower salary, vast pyramid of endless rotating managers above you, very little freedom to make a difference).

    2. BenDwire Silver badge

      Re: The pachyderm is dead and getting whiffy

      No, it's what the big consultancy firms lobbied government for. Those pesky individual contractors were too fast, too cheap and devalued the market for the big boys. Now that they've been brushed aside, the big boys will charge what they like, and take as long as they see fit to produce something that met the original brief, but is no longer fit for purpose.

      I wonder who actually wrote CREST?

    3. Cederic Silver badge

      Re: The pachyderm is dead and getting whiffy

      While the wife of the Minister to whom HMRC report to owns several hundred million pounds worth of Infosys I'm not sure the elephant is going to be noticed. Even if blindfolds are needed.

  11. herman Silver badge

    Foreign contractors

    Probably the only sure way is to settle in another country such as Spain/France, and then create a private company to contract remotely in the UK, the way Dabbsy is doing.

  12. Anonymous Coward
    Anonymous Coward

    I used to do freelance in addition to my 9-5 job, now it's no longer worth it, I'd earn virtually the same working night shift in Tesco, so I don't bother. HMRC causing labour shortages?

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