HMRC revamps CEST tool ahead of private sector IR35 rules

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HM Revenue and Customs has updated its Check Employment Status for Tax (CEST) tool ahead of the introduction of private sector IR35 rules next year. But concerns about its accuracy remain.

HMRC revamped the tool after it was criticised by businesses and contractors for delivering inaccurate decisions about workers’ tax status.

Around 30 questions have been updated or added to the tool to offer a more accurate determination of whether a worker falls within the remit of the off-payroll working rules.

However, Seb Maley, CEO of contractor insurance firm Qdos, said there were still concerns about the tool’s accuracy.

“Despite being tweaked, CEST still isn’t fit for purpose. With IR35 reform only a few months away, recruitment agencies and end-clients shouldn’t rely on it to deliver accurate information regarding a contractor’s IR35 status,” he said.

“From the wording of the questions to the tool’s reliance on the right of substitution when providing an answer, CEST poses a risk, not just to contractors, but to the agencies and end-clients that choose to use it.

“Still, at this stage in the game, CEST doesn’t take into account Mutuality of Obligation (MoO) either. Given MoO has been the deciding factor in a number of recent IR35 tribunals, that CEST still assumes it exists in every contractor engagement – when tribunal results show otherwise – is another reason not to trust it.”

Susan Ball, employer solutions tax partner at RSM, said: “It must be remembered that CEST is the only tool that will produce a result that HMRC will stand by – provided the information input is accurate and the tool is used in accordance with guidance.

“While CEST has generally been accurate in cases where the employment status is reasonably clear, it has been criticised for not providing a definitive answer in more borderline or challenging cases, particularly in certain sectors. For example, it would be helpful if HMRC could now issue new ‘Film, Television and Production Industry Guidance Notes’ last updated in 2012.”

By introducing the tool now, HMRC has allowed organisations that use contractors enough time to assess it and embed such checks into their processes ahead of the introduction of the new rules on 6 April 2020.

“With just 20 weeks to go before the new rules come it is helpful and pleasing we have it now. We look forward to the HMRC technical guidance being issued as soon as possible once the election is over and the final legislation to enable engagers to effectively finalise their processes and procedures,” said Ball.

HMRC said it has worked with more than 300 stakeholders to make CEST clearer, reduce user error and consider more detailed information.

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