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CEST Overruled in IR35 Settlement

If your business hires limited company contractors you’ll be interested to hear about a recent – and fairly hefty – IR35 settlement where HMRC overruled the CEST result.

The Department for Work and Pensions has been left facing a tax bill of £87.9m after being found to have incorrectly determined the IR35 status of contractors between 2017 and 2021, despite having used HMRC’s own CEST tool to determine status.

New IR35 rules were introduced in the public sector in 2017 before being rolled out to private businesses in April this year. We are therefore starting to see the first test cases come through since public organisations became responsible for assessing whether a contractor has employee or worker status for tax purposes.

The eye-watering scale of this settlement is sobering for businesses in the private sector, who will face similar challenges in the years to come. There are undoubtedly very real risks involved in navigating IR35 and engaging contractors through intermediaries. It is also clear that the CEST tool has its limitations. In a world in which algorithms have so much power, it is up to us humans to maintain overall control.