HMRC Rolls Out Improvements to CEST Off Payroll Tool

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With only a few months to go until the IR35 private sector reforms*, HMRC have released the first update to their controversial CEST (Check Employment Status for Tax) tool. The government believes that this tool is the best way to determine the IR35 status of your assignment and have stated that they will stand by the result of the tool.

What is the CEST (Check Employment Status for Tax) tool?

CEST is a digital tool created by HMRC to help parties determine whether a contract falls inside or outside of IR35. The tool was first announced for the public sector reforms in 2017 to help end hirers and public sector bodies make their determinations quickly and cost-effectively.

From April 2020*, the responsibility for determining the IR35 status of workers in the private sector (excluding small businesses) will fall to the end hirer or engager. If the worker’s contract is deemed to be inside IR35, the ‘fee payer’ – the organisation that pays the personal service company - will become the employer for tax purposes and so will bear the responsibility of making PAYE (Pay as You Earn) tax and NI (National Insurance) deductions before making the payment to the company account.

With these changes just around the corner, contractors and end hirers are looking for a sure way to protect themselves, and hoping to find this in the form of the CEST tool.

What were the issues with the CEST tool?

CEST has come under fire on a number of occasions for its inaccuracies - specifically for the omission of Mutuality of Obligation (MOO), one of the key determining IR35 factors, which has been referenced in a number of tribunals as a determining factor of employment status. An absence of MOO has contributed to several victories for contractors.

What updates were made to the CEST tool?

Following criticism that the tool is not fit for purpose when the employment status is more challenging, announcements have been made of several updates.

Around 30 questions have been added to the tool, including questions around financial risk and substitution. However, it still doesn’t take Mutuality of Obligation into account.

In a bid to increase the accuracy of status determinations and allow end hirers to use CEST before they have engaged with the worker, the tool will no longer require users to answer complex questions about the circumstances of the worker if they do not know.

NHS Digital and CEST

There have been concerns about the accuracy of the CEST tool since its introduction in April 2017. NHS Digital recently included an accrual in their published accounts for £4.3 million relating to unpaid PAYE tax and NI. The accrual covers the period that they were using CEST to determine the IR35 status of their contractors between April 2017 and December 2018; they now use another tool. This acts as a reminder to end hirers (and anyone using the CEST tool) that despite their assurances to the contrary, HMRC may not stand by the decision of the CEST tool.

With you all the way

In a world of ever-changing legislation, the right support by your side can make a world of difference. We have partnered with Qdos and are excited to offer a reliable solution for determining IR35 status through our Business Impact Tool. Our partnered reviews are thorough and offer the added reassurance of having an IR35 expert review the answers provided.

You can calculate the financial impact of the off-payroll reforms by visiting the Business Impact Tool or request a demo of it with our agency support team.


 *Update: at the time this article was written, the off-payroll (IR35) reforms were due to be implemented on the 6th April 2020. On the 17th March 2020, the UK government announced that it would be deferring the reforms to the 6th April 2021 to help businesses and individuals during the COVID-19 crisis.