HMRC Sending Misleading Letters to Contractors

HMRC has been condemned for abusing its powers after evidence has come to light that the taxman has been sending misleading letters to contractors in an attempt to increase the Off-Payroll legislation’s tax yield.

The letter, which is entitled: ‘About using a Personal Service Company (PSC) in the public sector – you need to check your employment status’, begins by explaining the compliance requirements of the Off-Payroll rules, before adding:

‘Please check to see if your employment status is right or was right when you used a PSC. You can use our online tool called CEST to do this… You should carry out this check within the next 30 days. We’ll contact you again to find out what action you’ve taken.’

As confirmed by a former HMRC officer Phillip Manley,
current tax partner at Dow Schofield Watts, the first thing to point out is that, contrary to the letter, the contractor doesn’t need to check their employment status. This is acknowledged by HMRC where it clarifies that the compliance responsibility lands with the public sector body and possibly the agency.

Secondly, use of CEST is not mandatory. Predictably, the letter doesn’t clarify this and, in fact, implies otherwise. Outside of tax and accountancy professionals, very few would be aware of this, and so it’s likely that many recipients of this letter have been falsely led to believe that a CEST assessment needs doing.

This is made even worse by the fact that CEST has demonstrated alarming inaccuracies as proven in the courts.

HMRC has publicly acknowledged that CEST is not legally binding and is just a guidance tool yet it is insisting that contractors use its tool to determine whether they should hand over the necessary details for HMRC to calculate a new, increased tax bill.



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