Defra and the Ministry of Justice facing £121m IR35 tax bills as CEST lets them down

Government documents just out have revealed that two more Government departments, the Ministry of Justice (MoJ) and the Department for Environment, Food and Rural Affairs (Defra), are facing combined additional tax bills of at least £121 million due to incorrectly determining the status of their contractors, despite following HMRC’s guidance and using HMRC’s Check Employment Status for Tax (CEST) tool. Both are also facing additional penalties for failing to adhere to reasonable care.  Earlier this year, the DWP, the Home Office and HM Courts and Tribunal Service were also hit with substantial tax bills

Now, the Ministry of Justice (MoJ) owes £72.1m and the Department For Environment, Food & Rural Affairs (Defra) owes £49m.

Having reviewed the accounts Dave Chaplin, CEO of IR35 Shield, said, “Both Defra and the Ministry of Justice would have received considerable help and guidance by HMRC to implement the Off-payroll reforms.  Both committed to using HMRC’s Check Employment Status for Tax (CEST) tool and followed HMRC’s guidance.  Both are now facing a combined tax bill of some £121 million.   This is a farcical and alarming situation underlined by a tool that is fundamentally flawed that HMRC refuses to fix.

“What’s more, both these government departments are also facing charges of carelessness with the MoJ facing a penalty of £15 million.  The law on reasonable care, or carelessness, is based around negligence and requires knowing what was in the mind of the person at the time.

“HMRC provided the advice and guidance and populated the minds of those conducting the assessments, yet HMRC is now claiming its ‘customers’ are effectively negligent.  It’s beyond belief.  It’s like the police training people how to drive properly, then fining all the trainees for reckless driving when they get out on the road.

“Surely, the time has come for HMRC to finally now acknowledge that CEST is not accurate and is not fit for purpose.  These latest fines are cast-iron proof of the accusations that have been made against the tool since its inception.  CEST should be withdrawn with immediate effect before it causes more damage to firms and the UK economy.”