Off Payroll Working rules / IR35 – health warning for CEST test users and other latest news
1. NHS digital hit with £43m tax bill for relying on CEST test
HMRC has successfully challenged a significant number of IR35 status assessments undertaken by NHS Digital, using HMRC’s Check Employment Status for Tax (“CEST”) test. This has left NHS Digital with a bill for £43 million (including interest and penalties), it was revealed by NHS Digital’s annual report and accounts for 2018-19.
This only serves to reiterate that HMRC’s previous promise to stand by the outcome of the CEST test is not worth the paper it is written on. The latest guidance from HMRC states that “HMRC will stand by the result given unless a compliance check finds the information provided isn’t accurate”. Given the subjective nature of some of the questions and potential answers in the CEST test, it is not easy to be sure that you have a reliable answer. Circumstances are rarely as black and white as HMRC assumes in the CEST test, with many contractors not fitting squarely into the categorisations available.
NHS Digital are no longer using the CEST test. Instead they state in their report that they are now making an initial assessment internally and then anyone assessed as being outside of IR35 is reassessed by an external provider. This is a damning verdict for the CEST test – not even a government department is willing to rely on it.
Kemp Little is partnering with an external provider to give clients a cost-efficient means of undertaking status determinations quickly and easily. If you would be interested in further information about this service, please contact Kathryn Dooks.
2. Updated guidance from HMRC on the Off Payroll Working Rules
HMRC published further guidance this week (28 October) on reform of the Off Payroll Working rules from April 2020. In our view, there is little new in the guidance and it certainly doesn’t fill in any of the gaps in areas where HMRC has previously promised to provide more detailed guidance (such as: what constitutes taking “reasonable care” when undertaking a status determination; what constitutes an outsourced contract for services, rather than a labour supply; or under what circumstances HMRC will proceed against the 1st agency or end user client in the chain when it cannot recover the tax and NICs from an agency further down the chain).
The main area of interest in the guidance is an assurance by HMRC that “HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour”.
This assurance has been widely doubted by commentators, who point out that there is no such guarantee in the draft legislation and it does not sit with the approach taken by HMRC in relation to GSK contractors recently.
3. Christina Ackroyd loses her IR35 appeal
Christina Ackroyd (a BBC Look North presenter) has lost her appeal against a judgement of the First Tier Tax Tribunal (FTT) that she was a deemed employee of the BBC, within IR35. The Upper Tribunal agreed with the FTT that the BBC had sufficient control over Ms Ackroyd such that, even though she provided her services via a personal services company, she was deemed an employee for tax purposes.
Despite Ms Ackroyd having some autonomy in the services she provided to the BBC, the FTT found (and the Upper Tribunal agreed) that the BBC retained ultimate editorial control of Look North and this was consistent with provisions in the contract between the BBC and her personal services company. In addition, the BBC had “first call” over her services for up to 225 days per year and were bound to pay her fee even if they did not use all 225 days. They were able to require her to report on a particular story (for other BBC news programmes) without also presenting the Look North programme. She could not provide services as a television presenter or broadcaster in the UK or Ireland without the consent of the BBC. They paid her a monthly fee rather than per appearance and she had a seven year fixed-term contract. She was given no choice by the BBC but to work via a personal services company.
Ms Ackroyd’s lawyers tried to argue that the BBC only had control over Ms Ackroyd’s output, not her input, and that the control was necessary for regulatory purposes and would have been applied wherever she had worked, so it should be disregarded. The Upper Tribunal rejected these submissions.
In particular, the FTT and Upper Tribunal found that there was a significant level of “implied control”. Ms Ackroyd was expected to and did drive change in Look North and to make editorial contributions, but the ultimate decision as to how the programme might be changed lay with the BBC. The FTT did not accept that Ms Ackroyd led the team, in the sense of control and decision-making. Whilst she controlled the research, production and filming of stories, it was a matter for the BBC to decide whether and in what way to use the story. They also had the right to edit Ms Ackroyd’s material. Ms Ackroyd could be told by the BBC who she was interviewing, but she had control over how the interview was conducted. The FTT observed that “Ms Ackroyd had a high degree of autonomy in carrying out her work and in identifying the stories she wished to follow”. It accepted that Ms Ackroyd was “not simply a newsreader”. However, this was not enough and the BBC still retained sufficient control over her, such that she was a deemed employee for tax purposes.
Ms Ackroyd now owes HMRC around £400,000 in tax (before offsetting any corporation tax already paid).
4. Will a December Election mean the changes are delayed?
Given that the draft Finance Bill (which contains the Off Payroll Working Rules) has not yet been put before parliament and a General Election has been called for 12 December, time is running out for the government to pass the Off Payroll Working legislation in time for 6 April.
The Finance Bill will not be put before parliament in advance of the General Election, meaning it is unlikely to get its first reading before the Christmas recess.
In previous years the Finance Bill has taken at least 3 months to progress through parliament and receive royal ascent. So commentators are wondering whether the government may push back the implementation date. We think this is unlikely, given how heavily trailed the changes have been and how much the treasury stands to make from the changes. We are advising clients to continue to prepare for 6 April. But watch this space for more information.
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Kathryn Dooks is an employment partner
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