The National Audit Office (NAO) has recently released a report analysing the impact of IR35 reform rules on the BBC.

The findings of the report show that the national British broadcaster encouraged contractors to engage through their Personal Service Companies (PSCs). This has been done to avoid paying employer National Insurance Contributions (NICs) and also to give bigger receipts to the workers, resulting in lower dividend rates and taxes.

But the report also reveals that after the implementation of IR35 reform rules in April 2017, BBC was forced to change its policy regarding contractor employment to avoid paying a tax avoidance penalty.

The company had also sought an extension for implementation of IR35 and made large payments to HM Revenue and Customs (HMRC).

Problems Regarding CEST Assessment Tool

The NAO report has particularly highlighted problems faced by BBC regarding HMRC’s Check for Employment Status Tax (CEST) tool.

CEST tool does not always result in the correct assessment of contract workers. The tool is notorious for wrong assessments due to which contractors have to face financial hardships. Still, despite its obvious shortcomings, the NAO report shows that BBC continued the use of the tool to make contractor assessments.

While CEST has been shown to make incorrect assessments, it does not mean that the tool always makes the wrong decisions. The tool does make correct assessments in many cases, resulting in fair and equitable tax charges.

A number of cases have arisen in the past where the contractors were wrongly assessed as outside IR35 based on unreliable contract assessments. This meant lost revenues for HMRC due to which it had introduced the IR35 reform rules last year.

The NAO report has correctly highlighted the shortcomings of the employment status tests and the problems faced by public sector companies. After April 2020, private sector companies would want certainty in assessments. Unless HMRC offers an alternative tool for employment assessment, no tool is currently available that can accurately assess the status of contractors. The solution to the issue is to get the contract reviewed by an IR35 specialist firm such as Qdos Contractor.

While the cost of reviewing the cases by a professional may be more, it will result in more accurate assessments thereby preventing costly court battles.

The main thing that private sector firms should focus on is the accuracy of assessments. They need to make sure that correct assessments are made based on an accurate review of contracts. It will benefit both the employer and the contractor in the long run as they don’t have to face financial hardships and court cases for violating IR35 reform rules.