HMRC's Slapdash CEST Tool

Oh dear, HMRC may have made another error wrt tax calculations.

The HR Director reports that more than 100,000 people could be facing incorrect tax bills as HMRC admits it has no detailed proof to demonstrate that its Check Employment Status for Tax (CEST) tool is accurate. 

The admission was extracted by a series of Freedom of Information (FOI) requests as part of a five month investigation by contracting authority ContractorCalculator. HMRC has stonewalled a series of requests for evidence and information from ContractorCalculator but finally responded to say that the taxman holds no detailed test data at all:

“The CEST tool testing was done by a workshop. The only documented output of the workshops is the set of rules used by the tool.

Our records show that HMRC has used the CEST tool to test all the cases cited in your request, but we do not have a record of how each question was answered as part of the testing, only the end determination.”

Following the release of CEST, HMRC has continued to champion its accuracy despite evidence from ContractorCalculator. The contracting site tested CEST against the historic IR35 cases in March last year and discovered that HMRC’s tool was unable to return the correct outcome in 37 percent of cases.

More recently, at a BBC select committee hearing, it was revealed that CEST had failed 97 percent of BBC broadcasters who had used the tool, prompting Jolyon Maugham QC to dismiss HMRC’s efforts at trying to achieve an “impossibly difficult” task.

Dave Chaplin, CEO and founder of ContractorCalculator said:

“I am incredulous that a fundamental piece of the CEST jigsaw is missing. For a tool of such importance, the lack of rigour involved in its testing methodology is astonishing. You have to wonder if HMRC has shredded any evidence to cover up CEST’s shortcomings?

HMRC publicly claimed that the CEST tool gives the right result provided the correct answers are entered into the tool but have chosen not to document any of those answers used during their testing process. There is a very simple way they can resolve this challenge – just publish the results of the 23 court cases, as put through CEST and prove their claims.

HMRC has taken a slapdash approach to building a tool that is clearly not fit for purpose, has not been tested properly and is missing important case law. HMRC tells us that it intends to release more information in April, so it will be intriguing to hear what HMRC has to say in its defence, a defence that seems to be unravelling as we learn more.

People’s lives and livelihoods are in tatters, not just at the BBC, as has been widely reported, but in other public services too. By forcing false employment upon people, HMRC could now face tens of thousands of claims for tax refunds and we won’t know what the scale of this is likely to be until January 2019 next year. 

Could this be HMRC’s PPI scandal? 

It’s even more appalling that HMRC wants to roll-out to the private sector the very same IR35 rules that have caused this chaos in the public sector. HMRC has significantly fallen down on its duty of care to businesses and tax payers.”

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Error and Fraud Rising Within Tax Credits

"HMRC collected more tax revenue in 2016-17 and improved its service levels for taxpayers. However error and fraud is rising within Tax Credits and HMRC needs to make it easier for claimants to get help. HMRC is part-way through an ambitious programme to bring in digital services and reduce its costs. In doing so HMRC must ensure it maintains adequate services if it is to protect revenue and tackle error and fraud”.

Amyas Morse, head of National Audit Office, 14 July 2017

The Comptroller and Auditor General (C&AG) has qualified his regularity audit opinion on the 2016-17 Resource Accounts because of material levels of error and fraud in the payments of Personal Tax Credits.

He has qualified the accounts on these grounds every year since Tax Credits were introduced in 2003-04.

HMRC’s central estimate of error and fraud in 2015-16 (the most recent available) is £1.57 billion of overpayments (5.5% of total spending on Personal Tax Credits) and £0.21 billion of underpayments (0.7% of total spending on Personal Tax Credits). HMRC’s estimated increase in error and fraud within Tax Credits is contrary to the significant reductions achieved in previous years, and the rate is expected to increase further.

Wrt MTD the scale of transformation will be challenging to manage, and the U.K.’s exit from the EU presents an additional challenge (no kidding!).

As for "customer service" the NAO warns that the current approach used by HMRC to measurement could overstate calls handled, and understate the time to answer as experienced by the customer.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC Online System Can't Cope

The Scotsman reports that HMRC’s own online tax calculator for self assessment is wrong, meaning people could be paying too much tax if they fall into certain income brackets.

Two groups of taxpayers are being overcharged if they file their tax returns online:

1 People who earn less than £16,000 a year – for example, from employment earnings, pension or rental income – and who exceed the Personal Savings Allowance, which is £1,000 a year for basic rate taxpayers and £500 a year for higher rate taxpayers.

2 Those who have total taxable income of between £27,000 and £32,000 a year, and who also receive enough income in the form of dividends to take them over the additional rate tax threshold of £150,000.

HMRC has admitted that its online systems are not able to cope with these two groups, and advises people who fall in these categories to file paper returns.

HMRC state that the problem won't be fixed this year.


Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC Inserts Errors Into Tax Returns

Seemingly HMRC is introducing errors into self-employed individuals’ tax returns, resulting in their failure to pay sufficient National Insurance.

According to the Telegraph, the errors relate to changes to the NI system announced by the previous government. From April 2015, workers’ “Class 2” National Insurance contributions have been declared on self-assessment tax returns. Previously they had been paid to HMRC by direct debit.
The £2.80 per week charge is supposed to be paid by all self-employed individuals and partners in partnerships, and counts towards individuals’ entitlement to state pension and maternity leave.

However, many taxpayers now find that where they submitted tax returns that correctly reported their Class 2 NIC liability, HMRC is actively “correcting” such returns by removing the Class 2 NIC liability. This appears to be “because the self-assessment system does not expect it to be paid”, accountants speculated.

George Bull, a tax expert at accounting firm RSM, said he and his colleagues initially detected a few cases of this error and were now seeing new incidences emerging on a “daily basis”. It was not affecting every self-employed individual’s return, Mr Bull said.

HMRC’s frontline staff have acknowledged the errors to accountants, and say they are due to a “technical fault” with HMRC systems that has been “reported internally”.

The concern is that individuals will either not spot the “correction” made by HMRC or believe that the removal of NI contributions from their return is correct.

“The problem is self-employed who file who see an adjustment coming through, which is probably in their favour and small – the risk is they will breathe a sigh of relief and think they don’t owe HMRC any more and leave it at that.

Then after 30 days, on the face of it, the whole thing is final. The issue is not so much the repayment itself, but the fact that if the NIC record is amended to show zero contributions for a year, people risk losing benefits as their record will become incomplete.”

HMRC initially denied the problem.

It later admitted the errors, but claimed that they affected only a “handful of people”.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Tax Error Penalties Increase By 38%

In the year to April 2016, HMRC imposed 28,663 penalties against those whose inaccurate returns deliberately understated their income.

This represents an increase of 38% on the 20,740 penalties given out in 2014-15.

International Adviser reports that the figures, obtained by RSM using a Freedom of Information request, show that just 5,162 fines were given out in 2012-13, an almost six-fold rise in deliberate penalties over a period of four tax years.

Mike Down, head of tax investigations at RSM, is quoted:

"This spike in penalties suggests a marked change in attitude at HMRC, and it is clear that Inspectors are now taking a much harder line.

However, HMRC needs to be wary of the perception that they are engaging in ‘penalty farming’ and ensure they don’t unfairly penalise people who are not seeking to deliberately deceive". 

Penalties are levied according to the type of taxpayer behaviour that leads to an inaccuracy and on whether the tax adjustment is volunteered freely, or arises as a result of an HMRC challenge.

There are four categories of behaviour, ranging from ‘mistake’ despite taking reasonable care, failure to take reasonable care (or ‘careless’), to ‘deliberate’ with the most serious being an inaccuracy which is ‘deliberate with concealment’. The more serious the behaviour, the higher the penalty.

As Mr Down says, HMRC needs to be wary of penalising people who innocently made a mistake.

The ongoing increase in penalties levied indicates one or more of the following:

1 Taxpayers are becoming more dishonest.

2 HMRC are becoming more skilled at identifying errors.

3 HMRC are "penalty farming".

Your thoughts and opinions are, as always, very welcome.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Coding Matters

It seems that the thorny issue of tax codes has raised its head again.

The Telegraph reports that up to three million people with more than one source of income face backdated tax bills of £2,000 per year, because of errors by HMRC.

Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension. Pensioners with two pensions and those who have continued to work part-time after retirement are also more likely to be hit.

It seems part of the problem lies with a the fact that tax offices around Britain are failing to share information about taxpayers’ incomes on a central database.

HMRC insists that the problem is not “systematic”, and says the vast majority of tax codes are correct. However, professional tax advisors are seeing a rise in cases where incorrect tax codes have been issued.


Clive Stevens, the executive chairman of accountancy practice Reeves, who sits on the council of the Institute of Chartered Accountants in England and Wales, is quoted:

“Often when people have two sources of income, two tax codes are issued by separate HMRC offices, each acting on the basis of information given to them by an employer, pension provider or the taxpayer directly. 

Clerical errors are made because the workforce, which has suffered sweeping redundancies, is demoralised and the required attention to detail and care is not there.

In my experience, up to three out of five PAYE codes that we see in our office are incorrect when first issued. In the worst cases, it has taken 10 attempts to get a correct code from HMRC.”

An HMRC spokesman said such problems should have ceased since the introduction of centralised record-keeping in 2009, adding:

“Over 98 per cent of tax codes are correct and the vast majority of people who pay their tax through the PAYE system on either earned income or pensions pay the right tax.”

Alastair Rush, of financial advice firm Echelon Wealthcare, said the situation is worsening.

“HMRC seems to be imbued with the concept that it’s infallible.

It prefers to pretend the system works just fine when we all know it doesn’t.

It produces errors with almost casual disinterest which cause a huge mess for clients, families and their employers. I wish it would hold itself to the same measure of accountability that it attaches to its customers.”

When errors are identified, HMRC is demanding back payments even where, under concessions (ESCA19) aimed to protect taxpayers, it has no right to the money because it was at fault. However, HMRC is unmoved and insists that "due to improved processes", it would only now apply in “very unusual circumstances”.

Views and comment from the frontline are, as always, very welcome!

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Another Fine Mess - Fine HMRC For Its Mistakes

Tony Margaritelli, Chair of ICPA (Independent Certified Practising Accountants), clearly exasperated at the number of erroneous penalty letters (12,000)  he has received from HMRC wrt his firm's clients has called for HMRC to pay a fine everytime it makes a mistake.

A lovely idea but sadly, in this universe, one that will never come to fruition.

Here is the text of his letter in full as published on AccountingWeb:

"Over the years, the imposition of fines for virtually every conceivable civic misdemeanour has become the norm. And as fines are introduced for previously ‘fine-free’ indiscretions they are, without fail, promoted with the line that “the fine is not about revenue gathering, it’s about changing actions”, or “the fine is being levied in the hope that the perpetrator will re-think their actions and change their ways”. So we have fines for taking children out of school in term time, fines for littering and fines for noise pollution – and every time it’s been about getting people to change their ways rather than generating revenue.

HMRC has been at the forefront of the ‘fines’ culture, which they fully support, and whenever anything changes – such as the introduction of RTI or iXBRL – details of the fines for errors or inaction follow hard on the heels of the initial announcement.

HMRC has promoted the principle that fines and penalties for failures on the part of the taxpayer are an acceptable deterrent. The result has been that for every failure on the part of the taxpayer to meet a deadline a penalty is imposed; every failure on behalf of the taxpayer to handle their affairs in a manner that is acceptable to HMRC results in a fine.

As accountants, our clients are being penalised and it is natural that they look to us for advice and help in what is perceived to be a thinly veiled attempt to close the tax gap. Our advice is, correctly, that appeals cost time and money and there is no guarantee of ultimate success. The usual result is that as accountants we suffer – we have to bear the brunt of the client’s anguish and ire. Thus the anger against such HMRC impositions grows not only in those directly penalised but also from their advisors.

One can only imagine the time spent by the client and the accountant over such issues, while HMRC simply accumulates income and urges compliance borne of better working practices.

Yet when the boot is on the other foot what happens? If HMRC is tardy in making repayments, issues coding numbers that are manifestly inaccurate or issue penalty notices when nothing is amiss are they subject to a fine? No!

Recently, we had to suffer over 12,000 – yes, that’s the correct figure – interim penalty letters for 2013/14 that were wrong. Were these letters checked before they were sent out? Was it a computer problem? Who knows. Frankly, HMRC gets it wrong for over 12,000 fully compliant taxpayers and what do they do? Well, naturally they apologise. Do they send the apology to the taxpayers concerned? No, they simply state that “HMRC is sorry for any inconvenience and concern caused” in the ‘What’s new’ section on its website. This is not the first error of this type but the question, surely, is will it be the last? Probably not, but would the likelihood of such an error reduce if HMRC was forced to pay each and every taxpayer sent the letter a £100 fine? If you follow the logic then the answer should be yes. If fines and penalties have resulted in better taxpayer behaviour, why does the same principle not apply to HMRC?

Next time your client gets a fine, try apologising – and see what happens."

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"