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CEST la vie - Check employment status for tax tool

The updated HMRC CEST tool to help determine whether a contractor is inside or outside the scope of IR35 is finally here.

It is finally here: the updated HMRC CEST tool to help determine whether a contractor is inside or outside the scope of IR35. HMRC had promised an update to the widely criticised CEST tool and now we have it.

If you do not know anything about CEST or IR35 then the drive to make the previous version clearer, reduce user error and consider more detailed information will not have been on your radar. However, if your inbox is populated daily with IR35 issues then you will want to know what is new and whether it will now be better. Is it better? In reality, yes a bit. Here’s a summary of what has (or has not) been done:

  1. The CEST tool will ask for more detailed information to help inform the outcome issued.

  2. It will no longer issue an early decision based on the initial answers given, allowing for more information to be considered. This presumably allows greater scope for contractors to fall outside IR35.

  3. There remains no consideration given to mutuality of obligation – which is a key element in the determination of an individual’s status as a worker or independent contractor.

  4. There are new questions around whether or not the worker is in business on their own account.

  5. It allows hirers (who may not have all of the information on a worker) not to answer certain questions and still issue a determination. It is recommended that the CEST test is subsequently re-run when the hirer is able to obtain that information.

  6. New guidance has been issued along with the new CEST tool.

In advance of the off payroll worker rules being applied to the private sector (excluding small organisations) from April 2020 the new CEST test will be relevant for both those where off payroll workers are engaged directly by the client, and those who are deemed to be the end client in any labour supply chain also. The new IR35 legislation will require the end client to undertake an assessment using ‘reasonable care’ to confirm their employment status determinations. These then need to be passed down the chain with financial penalties for those who fail to pass the determination on. The contractor will also have a right to appeal any such determination.

What does that mean for you?

This was always going to feel like something of a missed opportunity as HMRC continue to maintain that the key element of mutuality of obligation should not be included in the CEST tool. The assurance given by HMRC that they will stand by the determinations of the CEST tool (provided it is answered accurately) should be comforting but both the employment tribunals and the tax tribunals continue (quite rightly) to place emphasis on the mutuality of obligation. HMRC’s current track record in the tax tribunals is not inspiring – with a number of high profile losses for them in recent cases on employment status.

I think prudent businesses will likely want to deliver more comfort when undertaking IR35 reviews than simply relying upon a still underwhelming CEST tool. It is acknowledged that the CEST tool is likely to deliver the ‘right’ result in the most straightforward of cases but beyond that we would recommend that you seek further legal advice.

If this alert raises any issues for your organisation, please speak to your usual contact in the Weightmans employment, pensions and immigration team or contact Chris Bailey-Gibbs at chris.bailey-gibbs@weightmans.com.

If you have any queries relating to off payroll working and IR35, please complete the form below or visit our dedicated off payroll working and IR35 web page.

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