You only need to look at the public sector to realise the true – and quite staggering – cost of non-compliance. It emerged in the past few months that the Department for Work and Pensions, Home Office and HM Courts & Tribunal Service have each been hit with IR35 bills that together exceed more than £120m. It is therefore vital that companies engaging contractors are confident they have the processes in place to manage these changes in accordance with the law.
On that note, I feel it is worth stressing that the one-year ‘soft landing’ for IR35 reform promised by the government is a red herring. This so-called ‘light touch’, which means HMRC will not hand out penalties for non-compliance until 2022-23, should not distract businesses. After all, tax liabilities for non-compliance will still be issued – and in IR35 cases, tax liabilities dwarf penalties issued by the tax authority.
The controversy surrounding HMRC’s ‘Check Employment Status for Tax’ tool continues. This is despite the much-criticised technology having been in use for more than four years now.
Damning usage data for this tool published in September cast the spotlight back on one of Cest’s biggest flaws – its inability to make up its mind 21 per cent of the time. Of the 1,125,408 IR35 determinations it was asked to make between November 2019 and August 2021, Cest came up with nothing on 233,631 occasions.
That is potentially hundreds of thousands of contractors and businesses left in no man’s land with regards to their IR35 compliance.
Cest’s flaws extend beyond this, though. The tool has been dismissed in numerous tribunals, fails to consider all aspects of IR35 case law and can be overruled at HMRC’s will.
It goes without saying that neither businesses nor contractors should rely on it to assess IR35 status – it actually poses a risk to compliance, believe it or not. Fortunately it is not mandatory.
In the background, a tax case is rumbling on that could have huge implications, not just for the future of Cest but for hundreds of thousands of IR35 determinations made by the tool. If HMRC was to lose this case, it would also raise serious questions about the tax office’s grasp of the very employment status rules the tax office designed and looks to enforce.
Mutuality of obligation
PGMOL v HMRC is a £584,000 employment status case involving professional football referees who the tax authority argues are not self-employed, but in fact should have been engaged by Professional Game Match Officials Ltd as employees.
This case centres on whether ‘mutuality of obligation’ existed between the two parties.
By this I mean was there a mutual obligation for PGMOL to provide paid work and for the referees to accept this? If 'Moo' exists, it could mean the referees should have been engaged as employees, with PGMOL left to foot a mammoth tax bill, made up of missing employment taxes.
