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Rob Reid: Self-employed advisers at risk from HMRC

I have never been a great fan of daytime television, despite the worst possible occurrences of man flu over the years, but the recent news coverage on the employment status of veteran presenter Lorraine Kelly got me thinking. In particular, about just how long the “self-employed” status will remain a robust and safe position to take as a means of retaining advisers within firms. The government’s online tool, Check Employment Status for Tax, is designed to help employers to decide whether their workers are staff or contractors under legislation known as IR35.

But this decision is still not particularly straightforward. In Kelly’s case, HM Revenue & Customs was defeated at an IR35 tribunal, after she successfully appealed against a tax bill of £1.2m.

What is unfortunate – but perhaps not surprising – is that CEST has never actually been tested to make sure the decisions from the questions and underlying algorithms operate in line with any of the cases that have so far come to court.

This became apparent following a Freedom of Information request and subsequent research into the test’s level of accuracy from an organisation that supplies an online resource for contractors.

The group checked the test’s results against a sample of 24 previous court cases and found CEST got it wrong in excess of 40 per cent of the time. Interestingly, if we were to take the information from the Kelly case and drop it into CEST, the test says she was an employee.

Now, with this test telling just about everybody they are employees, it is quite clear that we are going to face some serious issues. I took the opportunity to test it myself, inputting the information I would argue is fairly accurate in respect of those people who are self-employed but who give advice through limited liability partnerships. In every case I put in, it showed that HMRC sees them as being employed.

HMRC has since suggested certain employers do not need to do the test but, for those currently working for larger distributors such as St James’s Place, it may prove even more impossible to pass.

Kelly’s case has unexpectedly gone against the Revenue, but that in no way means it is never going to succeed against anybody else.

I would imagine that it will try to bring additional legislation in to attempt to make the CEST tool valid going forward.

This is not something our industry can ignore and allow to progress, certainly not at a time when we already face substantial additional costs in respect of professional indemnity insurance and Financial Services Compensation Scheme payments.

But even if HMRC does not tighten up its rules, we cannot simply sit here and wait for it to have another go at busting someone.

Rob Reid is principal of CanScot Solutions

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Rt Hon Sir Arthur Streeb-Greebling 19th June 2019 at 3:21 pm

    Methinks you are missing the point here. The “scandel” as you put it, is why there is such a tax saving to be made by a different tax status.And if you want a real target for such an anomoly, why are GP’s taxed as ‘self-employed’ yet get all the benefits of employment. membership of the unfunded NHS Superannuation Scheme being the least of them.

    • I didn’t use the word “scandal”or even scandal!
      Nor did I suggest FS was the only target major professional firms and as you rightly point out Doctors too

  2. Rob is quite right. I can’t understand how so many FS employees get away with the self employed status.

    The Pimlico Plumbers case ( and lost on appeal) should have finally sorted this out.

    To be self employed you should be able to work with anyone you chose, use your own equipment and resources and source your own customers and suppliers. On this basis a great many advisers may have to be re-categorised. Why the Revenue have been so lax over so long is a mystery to me.

  3. PS Even those who are not fully independent, even if they run their own firms may find they have something to answer.

  4. That’s interesting because I completed CEST and the outcome said that this engagement should be classed as self-employment for tax purposes.

    • I ran several permutations but the questions are subjective so your result is no surprise, but then it depends what is inputted by HMRC – then the argument begins as with Kelly

  5. Self employed advisers should be appointed representatives so they can prove the point, many use a limited company vehicle which is dubious – an unregulated, un-exempted entity receiving regulated income… the AR route ticks all the boxes.

  6. Rob, all well and good to point out a potential issue and you state that we can’t be sitting ducks. But what is your proposed solution?

    • Make them employees, better control for the firm especially if they leave.
      I can see any restriction can work re the clients they bring to a firm

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