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Is HMRC’s CEST tool fit for purpose in the run up to April 2021?

Julian Ball

Julian Ball | Legal Director

Tuesday 19th Jan, 2021

HMRC introduced its ‘Check Employment Status Tool’ (CEST) in 2017 to assist employers, hirers and workers in determining the employment status of the worker to ensure that the correct tax and National Insurance Contributions were paid.

Since its inception it has faced fierce criticism as to its accuracy and completeness from industry, business users, workers and the accountancy profession which we initially covered in our article ‘head to head with the CEST'. These criticisms eventually forced gradual changes in the focus and content of the tool.

HMRC have confirmed that there have been no major updates to CEST since November 2019 when it had been enhanced to reflect the concerns as to its scope, detail and accuracy of output.

In December 2020 HMRC released their usage data from the period November 2019 and November 2020 revealing the outcomes it had given.

Based on nearly 1 million tests taken during this period it showed 52% found the worker to be outside IR35, 29% were inside IR35 and in 19% of cases the tool could not determine a status.

If accurate and honest information and answers are entered in the CEST, HMRC have indicated that they will honour the outcome. However, with so many ‘undetermined’ status decisions there is still a widespread view that the tool is still not fit for purpose for many potential users, particularly those with more complex engagement arrangements.

HMRC have indicated that they are reluctant to add more levels of complexity or nuance to the tool for fear of making it more difficult for the majority of users. They say that they have no further plans to update CEST but have undertaken to publish quarterly data on usage outcomes which they hope will help build user confidence.

Their solution to those cases which yield an ‘undetermined’ status outcome is nothing more than to suggest consulting their detailed guidance notes to help reach a decision.

These undetermined cases will inevitably be those in which the engagement is more complex and in which further research and understanding is required before a decision can be reached. Inevitably they are also those more likely to be at risk of an HMRC enquiry in due course!

For anyone at the receiving end of an ‘undetermined’ outcome we strongly recommend taking professional, objective advice and a review of the engagement such as that offered by PayStream’s IR35 Comply Service, which was named the UK’s Best Contractor Innovation at The Contracting Awards 2020.  

At this moment in time responsibility for making employment status determinations shifts from the off-payroll private sector worker to the ‘end user’ client on 6th April 2021.

We saw this move deferred from April 2020 because of the Covid-19 pandemic and some are hoping that there is still an outside possibility of a further deferral announcement at the Chancellor’s Budget due in early March. However, this is looking unlikely and cannot be relied upon so all expecting to be affected by the intended changes should act sooner rather than later, to ensure there are no delays come 6th April 2021.

Related article - The updated CEST - is it fit for purpose?

A little over a year ago we reviewed the update made to CEST from its unreformed, initial state. Undoubtedly improvements had been made however there was still a way to go. In this article we look at some of the changes that had been made and some of the flaws that CEST was still encountering.  

Read more
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