NHS Digital, the national information and technology partner to the health and care system in the UK, is facing a tax bill of £4.3 million after HMRC challenged a number of IR35 status assessments conducted using HMRC’s Check Employment Status for Tax (CEST) tool.

According to ContractorUK, NHS Digital says that owing to its use of CEST from  April 2017 to 31 December 2018, it must accrue £4.3 million to cover tax, interest and penalties.

In its annual report and accounts for 2018-2019, the report states, “Following the implementation of the new rules for IR35 introduced for the public sector in April 2017, we undertook a considered assessment of the status for each individual contractor which we believed met the HMRC requirements. However, HMRC have challenged our assessment. We have been in extensive discussions but now consider it appropriate to acknowledge their position and create an accrual covering the period from 1 April 2017 to 31 December 2018. This accrual is £4.3 million including interest and penalties.”

“We continue to improve our assurance processes to ensure we categorise all engagements in line with best practice. Up to December 2018, we assessed all contractors using the toolkit supplied by HMRC. From January 2019, we are now making an initial assessment internally. Any contractors considered to be outside of scope are then being reassessed by an external provider,” the report stated.

ContractorCalculator CEO Dave Chaplin says that the CEST’s fundamental flaws, coupled with HMRC’s propensity for challenging its outcomes, make its adoption an ‘incredibly ill-judged idea’.

“Because of how biased CEST is, the only way to get an ‘outside IR35’ determination is primarily on substitution,” Chaplin said. “The problem is, CEST does not ask any questions after that, meaning it hands out determinations that have been made in a manner contrary to how the courts look at these cases.”

An HMRC spokesman told ContractorUK, “We cannot comment on identifiable taxpayers. But we don’t want penalties, we just want to help organisations get the rules right. HMRC has put an extensive range of support in place to help businesses and other organisations get the status of the contractors they engage right.”