The merry-go-round that is implementing the off-payroll legislation has continued with yet another public sector body being hit with a tax bill for incorrectly using HMRC’s Check Employment Status for Tax (CEST) tool. This time it’s the turn of HM Courts & Tribunal Service (HMCTS) which has been charged £12.5m in an IR35 tax liability according to their published accounts for 2020-21.
The tax liabilities related to an undisclosed number of workers who were previously concluded as operating outside of the off-payroll working rules by HMRC’s CEST tool. HMCTS had concluded that workers were outside IR35 on the basis that individual workers could provide a substitute worker without consulting first, and without the department having any right of veto.
According to their accounts, “In 2019, HMRC challenged the MoJ to revisit employment status determinations for off-payroll workers engaged between 6 April 2017 and 5 April 2020, where HMCTS had previously concluded workers were operating outside IR35. This liability has crystallised and quantifies the contingent liability disclosed in the 2019-20 Annual Report and Accounts. As the department could have avoided these tax and NI payments if a different determination had originally been made, the liabilities are classified as fruitless.”
As Graham Webber of WTT Consulting pointed out, there is an additional financial consequence of these errors – the monies that have already been paid over to HMRC by contractors. Writing on LinkedIn, he said:
“Many will have reported corporate or personal income and paid tax/NIC. Now though their “employer” has also paid that tax/NIC. Has HMRC identified them and offered a credit/refund? I guess not.”
Yet another element of the merry-go-round to add to the list.
The case clearly illustrates that businesses need to be very careful before placing too much reliance on HMRC’s CEST tool because, despite stating they will stand by the result generated, the facts show anything but! Using CEST does not actually protect firms at all, as it seems that HMRC has designed a tool which no-one can use properly. It seems unthinkable that £1.8m of public money has been wasted on creating a tool that is not fit for purpose.