HMRC created the online Check for Employment Status for Tax (CEST) service in March 2017 as the government sought to crack down on the off-payroll working rules, known as IR35, in the public sector. The update to CEST, issued on 25 November, is the first one recorded since the service was launched. CEST will also be evaluated as part of the government review of IR35, launched on 7 January.
The updated version includes 30 or 40 additional questions with multiple permutations, and there is little doubt that the service will take longer to use due to the increased number of potential paths. Several industry bodies and reportedly more than 300 stakeholders were asked to test the updated tool, which was also rigorously tested against case law and settled cases by officials and external experts. The updates are designed to ensure that CEST is more rigorous and comprehensive in determining employment status, and can assist organisations in meeting the obligation of producing a status determination statement.
Until now CEST produced a determination of employment status in only 85% of cases. After answering a series of questions, the enhanced CEST tool will return a judgement on whether IR35 legislation applies or not. Questions cover worker’s duties, substitutes and helpers, working arrangements, financial risk, worker’s involvement and contracts (including if working for others).
Determining whether the worker is an office holder remains the first main question, as contractors covering office holder positions must be treated as being under PAYE. The issue of substitution is not far behind. The noticeable difference now is that whereas answering the questions in a certain way previously delivered an automatic out of scope result, that is no longer the case. This reflects changes in case law and the fact that the overall position is key.
There are new questions around series of contracts, whether the worker was part and parcel of the client’s organisation, and the nature of the contract; i.e. is the contract part of a series and is the worker in business on their account? Some of these questions will be hard for engagers to answer without detailed information from the contractor.
That said, CEST still does not fully cover mutuality of obligation, which was a key consideration in the recent cases of Richard Alcock (RALC Consulting Ltd [2019] UKFTT 703 (TC)) and Helen Fospero (Canal Street Productions Ltd [2019] UKFTT 647 (TC)), involving whether there was an obligation for the employer to offer work and whether the worker is obliged to accept that work. There are, however, some questions on this in the ‘business on own account’ section.
Mr Alcock used the CEST tool to consider his status and it concluded he was self-employed. HMRC then sought unsuccessfully to have this CEST evidence omitted from the case on the basis that it disagreed with the information entered and therefore claimed that the result could not be relied upon.
It must be remembered that CEST is the only tool that produces a result that HMRC will stand by, provided the information input is accurate and the tool is used in accordance with its guidance.
Despite some negative reporting, the impression of CEST has always been that the tool is good in cases where the employment status is reasonably clear, but it is hard to get a definitive answer in more borderline or challenging cases, particularly in certain sectors. The new version does not necessarily fully address this criticism.
Helpfully, HMRC has started to release new guidance in the Employment Status Manual on the use of CEST, as well as providing updates on specific areas such as the film, television and production industry guidance, which was last updated in 2012.
I would advise engagers and contractors to take another look and see if CEST works for them but to consider it as a guide. I know that many engagers are planning to use CEST as part of their process ahead of the new off-payroll/IR35 rules coming into force from April 2020. The fact the new version is out now is helpful as it allows users time to assess and check if indeed it will work effectively for them. If not, or if it’s only part of the process, hopefully it will provide some time to look at what other methods they might need to make sure they make correct status assessments, ahead of the new rules. Time will tell.
HMRC created the online Check for Employment Status for Tax (CEST) service in March 2017 as the government sought to crack down on the off-payroll working rules, known as IR35, in the public sector. The update to CEST, issued on 25 November, is the first one recorded since the service was launched. CEST will also be evaluated as part of the government review of IR35, launched on 7 January.
The updated version includes 30 or 40 additional questions with multiple permutations, and there is little doubt that the service will take longer to use due to the increased number of potential paths. Several industry bodies and reportedly more than 300 stakeholders were asked to test the updated tool, which was also rigorously tested against case law and settled cases by officials and external experts. The updates are designed to ensure that CEST is more rigorous and comprehensive in determining employment status, and can assist organisations in meeting the obligation of producing a status determination statement.
Until now CEST produced a determination of employment status in only 85% of cases. After answering a series of questions, the enhanced CEST tool will return a judgement on whether IR35 legislation applies or not. Questions cover worker’s duties, substitutes and helpers, working arrangements, financial risk, worker’s involvement and contracts (including if working for others).
Determining whether the worker is an office holder remains the first main question, as contractors covering office holder positions must be treated as being under PAYE. The issue of substitution is not far behind. The noticeable difference now is that whereas answering the questions in a certain way previously delivered an automatic out of scope result, that is no longer the case. This reflects changes in case law and the fact that the overall position is key.
There are new questions around series of contracts, whether the worker was part and parcel of the client’s organisation, and the nature of the contract; i.e. is the contract part of a series and is the worker in business on their account? Some of these questions will be hard for engagers to answer without detailed information from the contractor.
That said, CEST still does not fully cover mutuality of obligation, which was a key consideration in the recent cases of Richard Alcock (RALC Consulting Ltd [2019] UKFTT 703 (TC)) and Helen Fospero (Canal Street Productions Ltd [2019] UKFTT 647 (TC)), involving whether there was an obligation for the employer to offer work and whether the worker is obliged to accept that work. There are, however, some questions on this in the ‘business on own account’ section.
Mr Alcock used the CEST tool to consider his status and it concluded he was self-employed. HMRC then sought unsuccessfully to have this CEST evidence omitted from the case on the basis that it disagreed with the information entered and therefore claimed that the result could not be relied upon.
It must be remembered that CEST is the only tool that produces a result that HMRC will stand by, provided the information input is accurate and the tool is used in accordance with its guidance.
Despite some negative reporting, the impression of CEST has always been that the tool is good in cases where the employment status is reasonably clear, but it is hard to get a definitive answer in more borderline or challenging cases, particularly in certain sectors. The new version does not necessarily fully address this criticism.
Helpfully, HMRC has started to release new guidance in the Employment Status Manual on the use of CEST, as well as providing updates on specific areas such as the film, television and production industry guidance, which was last updated in 2012.
I would advise engagers and contractors to take another look and see if CEST works for them but to consider it as a guide. I know that many engagers are planning to use CEST as part of their process ahead of the new off-payroll/IR35 rules coming into force from April 2020. The fact the new version is out now is helpful as it allows users time to assess and check if indeed it will work effectively for them. If not, or if it’s only part of the process, hopefully it will provide some time to look at what other methods they might need to make sure they make correct status assessments, ahead of the new rules. Time will tell.
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