Public Sector CEST troubles – what can we learn?


You may have seen reports published on ContractorCalculator, that the Ministry of Justice and Defra have had some substantial IR35 issues recently. HMRC have handed both departments large tax bills and fines for carelessness totalling £120m.

These were just the latest of embarrassing compliance failures for public sector bodies relating to the Off-payroll reforms. These revelations come after previous Government bodies who used HMRC’s CEST tool were also hit with substantial tax bills, including the Department for Work and Pensions (£87.9m), the Home Office (£29.5m), and HM Courts and Tribunal Service (£12.5m).

Fined by HMRC, despite being educated by them

Interestingly, HMRC provided the guidance, and both public bodies used HMRC’s Check Employment Status for Tax (CEST) tool. According to HMRC’s website, this should have meant that HMRC would have stood by the results - yet instead, they issued extra tax bills and even additional fines for carelessness. We find this bizarre and a bit like the police teaching driving courses and then issuing tickets for reckless driving!

Non CEST users need not worry

However, it is important to stress that only those using CEST should be concerned about these antics. If you have a robust compliance solution like IR35 Shield, you do not need to worry.

HMRC cannot force you to use their CEST tool, and any status challenge made by HMRC would need to reference the case law and not CEST, because CEST is not law and has no legal authority.

The problem with using CEST is the conflict of interest. It creates risk, rather than alleviating it. In “CEST World”, the only party you can complain to is the one trying to fine you.

Circulating money generates zero tax

Another critical factor is that this is the public sector, and the new tax bills merely circulate money from one Government coffer to the other. There is zero motivation for a department to challenge HMRC. The only winners would be lawyers, charging hefty fees to determine which post-box to send the money to the same destination.

Don’t let silence breed complacency

HMRC has started reviewing a few of the 60,000 medium to large firms for the private sector. Still, we are years away from a related tax tribunal because, in our experience, inquiries take around four years before reaching an appeal. It would be best if you did not let this apparent silence breed complacency - no one needs an investigation.

The best tactic under this new legislation is to act pre-emptively to shore up original determinations, which our unique Monitoring technology achieves. If you’ve not yet upgraded, please speak to your account manager at IR35 Shield.

And with clients using Monitoring and adopting a full compliance approach, all assessments are included for free.

Dave Chaplin

Dave Chaplin is a former IT contractor, founder and CEO of IR35 Shield. He is also the author of "Contractors' Handbook" and "IR35 and Off-Payroll Explained".