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The Check Employment Status for Tax Tool, commonly referred to as CEST, is an online tool on the HMRC website which assists in determining the employment status of a role. It will work out whether or not “a worker on a specific engagement should be classed as employed or self-employed for tax purposes”.
If accurately completed HMRC claim that the answer provided will produce the correct status and that they will accept and stand by the determination with a disclaimer that inaccurate information entered would invalidate this commitment.
The CEST is based wholly on HMRC’s interpretation of employment and tax law however HMRC’s interpretation of employment status has been rejected in a significant number of cases.
In November 2019 HMRC revisited CEST and made a number of positive changes. It meant that the questions asked on some of the areas would ‘paint a picture’ of the working relationship, which is a key approach adopted by the courts. But even with these changes there were still some concerns as to the accuracy of the determination.
Here are a few of the issues:
When HMRC published their usage data for the period November 2019 and November 2020 in December 2020, they advised that there are no plans to make any further updates to the tool. And although the updated tool seems to have ironed out some flaws, significant problems still remain such as the failure to address Mutuality of Obligation. Despite this being raised by the courts countless times HMRC still assume that this exists from the outset by the creation of the contract.
The questions in the updated tool are far more comprehensive than the original, unreformed tool however they still lack the nuances which are always present in working relationships, a shortcoming which is a real handicap of the tool.
We have seen HMRC challenge the outcome of determinations arrived at by using the CEST (NHS Digital and the Ministry of Justice) and that organisation’s reliance on it has not necessarily discharged its obligation to show ‘reasonable care’.
In October 2023, HMRC updated CEST further, moving it to a new platform with additional features such as allowing users to reviews their answers after each section, embedding guidance into the tool itself and linking answers to the conclusion drawn. It still however does not address mutuality of obligations and it may well be the case that HMRC are awaiting the Supreme Court’s decision on the PGMOL case.
So our conclusion is, although the upgraded CEST may be a step forward it still isn’t there yet.
Rather than be hostage to the fortune of CEST, we strongly recommend that contractors and agencies seek an independent, specialist review that satisfies the reasonable care requirement and can protect the individual or organisation involved. We believe that the advantage of using an independent status review service like PayStream’s IR35 Comply is that we have a human being evaluating all of the information provided by the contractor, agency or hirer. This allows us to ‘paint a picture’ of the overall working circumstances of the role before determining an IR35 status.
What’s more, IR35 Comply is operated via our innovative online portal. Where required, the portal will send a review to the agency and/or client for sign off and there is an appeal process should a contractor disagree with the outcome and want to provide further information relevant to his/her circumstances. There is also an auditable trail of evidence in the event of any HMRC challenge