IR35: could self-employed taxpayers be eligible for reassessment?

In July, HMRC published a paper confirming that it doesn’t recognise a complex piece of case law in its Check Employment Status for Tax (CEST) tool.

But experts say this shows that HMRC doesn’t understand what’s required to prove or disprove an employment relationship. If HMRC say they got it wrong, more than 750,000 contractors could ask for their results to be re-examined.

What is CEST?

Check Employment Status for Tax is HMRC’s tool for checking whether or not a worker falls within the scope of IR35.

HMRC developed the tool for the introduction of new off-payroll working rules in 2017. The Revenue also encourages the use of CEST for private sector working.

But since launch, the tool has consistently come under fire. Experts point out that CEST doesn’t take into account Mutuality of Obligation (MOO), a key factor in IR35 case law.

With July’s paper confirming HMRC’s legal position on MOO, tax experts have disagreed with its stance.

They question how HMRC can roll out reform to the private sector if it consistently gets it wrong in court – of four IR35 cases revealed in 2018, HMRC has only won one.

Why is MOO important?

MOO is well established in IR35 case law. It refers to the employer’s obligation to provide work and pay for it, as well as the employee’s obligation to do the work.

If there isn’t MOO, more often than not a contract falls outside IR35.

HMRC claims that if a contract exists between an employer and worker, MOO has already been established. Dave Chaplin, CEO of Contractor Calculator, says this “entirely misconstrues the law.”

Indeed, MOO has been a key component in many cases, including a 2017 tribunal (the details of which only emerged in 2018). The contractor won the case, the judge saying: “The mere offer and acceptance of a piece of work does not amount to mutuality of obligations in the context of employment status.”

Chaplin added: “Judges have consistently told the taxman that simply having a contract is not sufficient MOO to be considered as a pointer towards an employment relationship.”

HMRC’s stance rejected

The IR35 Forum, a group that consults with HMRC to improve the way IR35 is handled, has overwhelmingly stated they don’t endorse the position laid out in July’s paper.

The Association of Independent Professionals and the Self-employed (IPSE), which is an IR35 Forum member, added that the problem with CEST not testing for MOO “will become even more acute if the government rolls out the IR35 changes to the private sector, where the sheer variety and complexity of engagements inevitably means that mutuality of obligation cannot be said to exist in every case”.

IPSE’s director of policy and public affairs, Simon McVicker, said the failure of HMRC to recognise the latest tribunal decisions “suggests they have their heads in the sand.”

HMRC’s consultation on off-payroll working in the private sector closed on 10 August.


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