IR35: NHS Digital
NHS Digital’s disclose that they’re accruing £4.3 million to cover tax liabilities, penalties and interest for incorrectly-assessed IR35 status has raised eyebrows. It’s the first concrete evidence we have that HMRC has been speaking to end clients and informally challenging status determinations. It comes at a time likely to make private sector end clients question whether that could be them in a couple of years’ time, and it’s worth exploring a little further.
The use of CEST
NHS Digital used CEST to make the assessments that are being challenged, so considering HMRC has said they stand by any CEST assessment which was completed correctly, it indicates HMRC’s position is that NHS Digital did not use CEST correctly. That’s an incredible number of contracts to have incorrectly assessed.
If you created a tool to accurately assess status of contracts, and the vast majority were wrong, would you think perhaps the tool is flawed? Maybe it doesn’t explain context well enough, uses the wrong weighting, or is just too open to interpretation? But ultimately, can you really have that much user error with a well-designed assessment product?
This means that those who have used CEST and relied on the HMRC assurance really have no idea as to how much assurance this gives. With the new tool looking like a minor update rather than the major overhaul that’s needed, I certainly wouldn’t be relying on it.
NHS Digital say their contractor spend over the tax year in question was around £16 million. The amount owed is £4.3 million, which is around 25% of spend. Getting status wrong risks a fine of 25% of what you spend on contract labour; that’s a huge amount of risk, especially when you consider that NHS Digital made assessments in the way HMRC recommend.
I know that this reassessment process is happening across the public sector, and I know that large private sector end clients are being told about this to reassure them about applying a stringent, narrow assessment approach – that it will be the same across both sectors. It won’t, as those sensible pragmatic clients who understand the risk and take a considered approach to managing it will not use HMRC’s interpretation of the law. They will use an assessor who takes into account actual case law and backs up the assessment with an insurance product.
A final point on timing - I’m sure there are many people outside of the compliance world who think GDPR is ‘done’, and may equally consider in the latter half of 2020 that if there’s not massive fines making the headlines, IR35 will also be ‘done’. The disclosure of this comes two and a half years after the public sector changes. We can reasonably deduce it was raised with NHS Digital around 12 – 18 months after the changes. 25% adds up to quite a lot over a few years – it’s worth getting this right from the off.
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