HM Revenue and Customs (HMRC) has experienced another blow as a tribunal judge has ruled against the IR35 determination of its Check and Employment Stats for Tax (CEST) tool. The judge has rejected the tool’s assessment that had wrongly put a contractor professional inside the IR35.

Tony Elbourn had entered into a contract with the Met Office as a business analyst. He had offered services as a business analyst between the months of August 2017 and January 2018 through a recruitment agency named Qualserve Consulting Ltd.

The CEST tool had deemed Mr. Elbourn as being inside the IR35 due to which tax and national insurance were deducted from his wages.

However, Judge O’Rourke hasgiven the verdict that Mr. Elbourn’s work falls into the category of self-employment. He was neither a worker nor an employee as judged by the CEST tool.

HMRC had employed strange defence tactics during the case. It had alleged that Mr. Elbourn was not an actual employee but a ‘deemed employee’. This, in fact, implies that he was self-employed, which eventually led the case outcome to be in his favour.

According to the presiding judge, Mr. Elbourn was his own master with regards to the assigned project. Apart from the weekly meeting, he did not have to conform to the company’s policies.

Judge’s Verdict A Severe Blow to HMRC

Dave Chaplin the CEO and founder of ContractorCalculator has stated that the ruling against HMRC’s tool represented a ‘hammer blow’ that has questioned the validity of the CEST tool.

Mr. Chaplin predicts that there will be many more similar cases in the coming months.The case outcome will encourage contractors facing similar predicaments due to being wrongly judged inside the IR35 by the CEST tool.  The outcome against HMRC adds to the growing evidence that the CEST tool is inaccurate in determining employment outcome and therefore should be withdrawn.

The judgement against HMRC comes weeks before the announcement of the Government’s Budget. Mr. Chaplin says that this court case may force the Government to reconsider its plan for premature extension of IR35 to the private sector.

The Government should focus on more important matters such as the aftermath of the Brexit. It should not go ahead with plans that will further deteriorate the market. Extending IR35 to the private sector will have unexpected results. It could put the economy in a recession as the private businesses will likely face skill shortages or increased costs due to employing full-time specialized staff.