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The CEST tool - can you rely on it?

David McManus

David McManus | Personal Tax Manager

Monday 4th Nov, 2019

There is a doctrine in English law called ‘legitimate expectation’. It’s there to protect a person against a public authority resiling from a representation it has made. It is based on the principles of natural justice and fairness, and seeks to prevent the abuse of power.

As such, UK taxpayers and businesses are used to following the guidance and advice of HMRC; seeking confirmation whether complex transactions may lead to tax liabilities and relying on such guidance to provide certainty as to how HMRC interpret legislation.

Imagine then the surprise which awaited NHS Digital, the information and technology partner to the Health and Social Care system, when HMRC refused to accept the status determination outcomes that has been determined by HMRC’s very own CEST tool.

So what went wrong?

As a public sector body, NHS Digital (who rely heavily on IT contractors to provide a significant input into the maintenance and development of their systems) were required to review the tax arrangements of those contractors following the introduction of the off-payroll working rules in the public sector from April 2017.

Their 2018-19 Annual Report and Accounts reveal that, having used the CEST tool, with what we assume was the appropriate care and diligence, HMRC refused to accept the status determination outcomes.

NHS Digital’s Report explains that despite having used CEST to evaluate all their contractors’ employment statuses up to December 2018, out of a total of £5 million accrued for potential employment tax liabilities they are facing a potential tax bill of up to £4.3 million for getting those determinations wrong.

If CEST can’t be trusted, what’s the answer?

The many and varied deficiencies in the CEST have been widely debated and HMRC have undertaken to develop and improve the tool to make it fit for purpose in time for the April 2020 introduction of off-payroll working in the private sector.

However for NHS Digital that’s come too late. Given HMRC’s ‘promise’ that they would accept a status determination if the information entered into the tool was accurate, their subsequent resiling from that statement is indicative of the muddle and certainty which surrounds status issues.

This latest episode in the IR35 saga goes to show the importance of obtaining an independent status determination. That is a route which NHS Digital have now taken and they explain that although they use the CEST tool internally, any outcomes reporting outside IR35 are referred for an independent review.

PayStream can help!

Our IR35 Review Service, IR35 Comply enables you to manage IR35 throughout your supply chain, all via our innovative portal. It’s quick and easy to use, shares information throughout the supply chain and is supported by our internal team of IR35 experts. From issuing your contractors a login to confirming the contractor's IR35 status, IR35 Comply is the market leading portal. For help and advice on IR35 issues or to request a demo of our IR35 Comply service please contact your local CRM or drop an email into

Related article - Head to head with CEST

Over the past year or so much has been written and said about this HMRC creation and it is destined to figure prominently in the lead up to April 2020 when the off-payroll working in the private sector rules are scheduled to come into effect.

Read more here
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