We are pleased to point to some very good work done by Contractor Calculator, led by Dave Chaplin, that clearly demonstrates that HMRC’s CEST tool currently fails miserably to produce status determination results that reflect the most recent Court of Appeal binding law.
Chaplin has gone back to the original current version source code (v2.4) and compared outputs with what the Court of Appeal has said, in particular referring to the cases of Hall v. Lorimer and Ready Mix Concrete. It has been shown that the CEST algorithms are incapable of mirroring the 3 part approach to assessing whether an assignment is inside or outside IR35 and the Court of Appeal is very clear in its judgement that this process needs to be fully followed to have a chance for a correct outcome to be determined.
This of course exposes users of the CEST tool to considerable risk to challenge in court from HMRC, even if the tool gives an ‘outside’ result. The algorithm is not capable of running the third stage in particular, where a ‘stand back’ overall assessment is required to look at the totality of the relationship.
The position is summarised thus by Dave Chaplin:
” With no statutory definition of employment, one must turn to the common law to determine employment status. The seminal case, Ready Mixed Concrete from 1968, provides a framework upon which status is determined, consisting of three limbs or stages.
The first stage covers personal service, including mutuality of obligation, and the second stage considers control. After that, the third limb can bring in other factors, where a multi-factorial assessment is then made using a “stand-back” approach – a phrase from a case called Hall v Lorimer.
As the webinar explains in detail, HMRC put forward many arguments within their grounds of appeal, most of which the Court of Appeal disagreed with. For example, Ready Mixed Concrete does not take primacy over Hall v Lorimer, and the extent of the factors considered in the first two limbs should be considered in the third limb, which is not simply a negation exercise. HMRC’s arguments were refuted by the Court of Appeal using strong words like “myopic”, and HMRC were reminded that common law should not be read like a statute.”
The whole article, plus direction to Contractor Calculator’s recent webinar can be found HERE
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