A self-employed contractor has scooped thousands of pounds from HM Revenue and Customs after the British tax body used its controversial CEST online tool to wrongly determine her tax status.
Susan Winchester, a marketing and business development consultant, dragged HMRC, Kinect Recruitment Ltd, and three others, to the Central London Employment Tribunal over £4,200 of unpaid holiday pay.
Her firm, SJW Marketing Solutions Ltd, had been contracted by HMRC. Officials ran the Check Employment Status for Tax (CEST) tool to determine Winchester's status and the tool decided that IR35 applied. Having done that, the taxman then forced her onto an agency's payroll, a decision that could not be challenged.
"I just couldn't understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge," said Winchester.
When she took her case to the legal system, Winchester said that because she had effectively become an agency worker thanks to HMRC's decision, she was therefore entitled to holiday pay and to the same holiday entitlement as actual employees of the tax collection agency.
Had HMRC's minions been reading The Register, they may have avoided this costly blunder. CEST is well known for delivering inaccurate results, with its multiple-choice question format assuming that mutuality of obligation – one of the core building blocks of a contract of employment – exists in every case. Critics said this means the tool is biased towards delivering results that wrongly tell people they should be paying more tax than is actually due.
CEST, as HMRC said earlier this year, is built on the assumption that "a contract exists or is being considered", adding: "We do not anticipate the tool being used outside of these circumstances."
So it was that HMRC settled the tribunal case immediately before it was due to start.
The Association of Independent Professionals and the Self-Employed (IPSE), which funded Winchester's case, branded the settlement "a body blow to the government's chaotic and damaging IR35 policy", with chief exec Chris Bryce adding:
"If HMRC don't understand their obligations under a system they've created, how can they expect businesses to get it right? You can't just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay."
Earlier this year an IT contractor won £26,000 in back taxes after a tribunal ruled that he was outside IR35, and not inside it, as HMRC insisted. ®