Thousands of hires in the public sector are being taxed incorrectly as a result of blanket tax decisions made by public sector hirers. This shocking revelation comes off the back of an investigation into HMRC’s IR35 self-assessment tool [CEST] which found that 54% of assessments carried out by the tool obtained an “IR35 does not apply” result. With many public-sector bodies lacking faith in the tool – currently the IR35 rule only applies to contractors working in the public sector – many hirers and recruitment firms, citing confusion and fearing fines, made blanket decisions on their contract hires; deciding that IR35 did apply.
Commenting on figures unearthed by the FOI, Dave Chaplin, CEO and Founder of ContractorCalculator said: “We know that blanket assessments were imposed within the NHS and Ministry of Defence (MoD) as well as on other key projects and now those bodies face considerable litigation risk because many contractors have been wrongly classified.”
Chaplin also slammed HMRC’s attitude to the decisions their IR35 tool made, saying that although they initially said they would stand by the tool’s decisions the Government gave themselves room to challenge the decision. Chaplin believes this creates further fear which creates further incorrect tax decisions.
“HMRC essentially granted itself the freedom to challenge any assessment that it sees fit. Though hirers and agencies are effectively coerced into using the tool by HMRC, they know that an outside IR35 evaluation from CEST still poses significant tax risk,” he said. “The disparity between the number of contractors who are told IR35 does not apply by CEST and those who are taxed as being outside of IR35 is no coincidence. “Receiving a pass from CEST is the equivalent to being presented with a dodgy MOT certificate. In light of this, it isn’t too surprising that so many hirers have taken the supposedly risk-averse option. They simply do not trust CEST’s results.”
The latest IR35 finding comes just days after an official accountants trade body wrote to the Financial Secretary of the Treasury advising that HMRC’s tool for self-assessment is not suitable for the private sector if it were to be rolled out. Chaplin concluded: “It’s evident that asking hirers and agencies to assess IR35 status has been a massive error of judgement. Promoting CEST, a tool intended to support hirers, but which creates even more uncertainty instead, has only compounded the situation.”
IR35 was originally tweaked to make up a shortfall in HMRC’s tax revenue. Since its rollout last year, recruiters and contractors alike have lambasted the fear and confusion it has caused.
SOURCE: Recruitment Grapevine
