HMRC has been forced to admit that it cannot prove the accuracy of its much-maligned CEST tool.

Thanks to a series of Freedom of Information requests, it has come to light that HMRC has no detailed evidence that CEST is capable of doing what it intends – determine the IR35 status of workers.

An investigation by ContractorCalculator has heaped pressure on HMRC to address the issues with the tool.

ContractorCalculator has been on HMRC’s case about CEST for quite some time. Major flaws with the tool were highlighted in March 2017 by the contracting experts. They used the tool to judge a number of historic IR35 cases. However, correct outcomes were only returned in 37% of cases.

Several FOI requests later and after much too-ing and fro-ing, HMRC has had its hand forced.

ContractorCalculator had written to HMRC saying: “HMRC has claimed that the tool was tested, in conjunction with HMRC’s lawyers, against known case law and settled cases. There will therefore be documentation (digital or otherwise) relating to the testing of the 21 known IR35 court cases, used for the testing of the tool.”

This all seems fairly reasonable. Surely HMRC, in an attempt to prove the efficacy and efficiency of the CEST, will have made a detailed record of its development process?

Apparently not! Though HMRC claims a workshop attended by ‘officials, lawyers, tax and IT professionals’ took place during the CEST tool’s development, it admits the only documented output of the workshops were the set of rules used by the tool. These are already in the public domain.

What are contractors meant to do then? Take HMRC’s word for it that it’s accurate? Well, ContractorCalculator have already poked a massive hole in that. Having a success rate of just over 1 in 3 doesn’t instill confidence.

IR35 just too complicated?

It seems that the very nature of IR35 is too complicated for even HMRC to clarify and be consistent with. Revelations such as this only add to that impression.

Whether HRMC will have the gumption to admit that CEST has proven a flawed approach remains to be seen. But this episode will certainly leave them will egg on their face.

Furthermore, this finding adds to the argument that IR35 is not the clear cut entity HMRC would like it to be. If IR35 reforms therefore come to the private sector, the chances of a smooth introduction appear increasingly slim.

This, surely, should be enough to quash the notion altogether. Here’s hoping HMRC will see the light.

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