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One of the biggest criticisms of the IR35 legislation is its complexity – put differently, how difficult it can prove to accurately determine if a contractor belongs inside or outside these tax rules.
To help contractors and businesses overcome this challenge, HMRC built the ‘Check Employment Status for Tax’ tool – or ‘CEST tool’, as it’s more commonly called. But from the moment the CEST tool was introduced, it has been criticised, with many experts, contractors and businesses doubting its reliability. In this article, we’ll bring you up to speed on CEST and explain why this technology remains controversial, to say the least.
What is the ‘Check Employment Status for Tax’ (CEST) Tool?
HMRC’s CEST tool exists to support businesses and contractors with IR35 status determinations. It presents a set of questions which, based on the answers, aim to provide the user with a recommendation about how a contractor should be engaged – whether inside or outside IR35. It’s also designed in a way to allow sole traders and their engagers to determine employment status – that is, to assess if the worker should be classed as self-employed or employed.
CEST was introduced in 2017, just one month before the rollout of the off-payroll working rules in the public sector, which saw public sector organisations become responsible for determining the IR35 status of contractors. It has remained largely unchanged since then, with the tool commonly used by medium and large private sector businesses, which, in April 2021, were also handed the task of administering IR35.
However, the CEST tool has many critics, who regularly express concerns about its ability to accurately determine IR35 status.
The so-called failings of CEST include the following:
- Its failure to fully consider all aspects of the IR35 legislation (e.g. Mutuality of Obligation)
- Its inability to provide an answer 100% of the time (around 80% is the average)
- That HMRC won’t always stand by its results (more on this below).
- That an IR35 determination based on CEST was overturned in a tax Tribunal
- That certain questions bear too much importance (e.g. if a contractor has the right to provide a substitute).
Will HMRC take responsibility for the CEST tool’s mistakes?
Yes and no. The government guidance states that “HMRC will stand by all determinations given by the tool, as long as the information give remains accurate.” Put differently, HMRC will only take responsibility for mistakes made by the CEST tool if all information inputted by the user is 100% correct.
Given that IR35 is complex and often open to interpretation – evidenced by lengthy IR35 Tribunals, which are often appealed and even overturned – relying solely on a recommendation made by the CEST tool is considered a risk.
Are there any alternatives to the CEST tool available?
With the above in mind – and considering the concerns regarding CEST’s reliability – contractors and businesses often seek a second opinion to check the accuracy of an answer provided by the tool.
While HMRC advises CEST’s use (naturally) it should be noted that use of the tool is not mandatory – and other methods can be used to determine IR35 status, which also ensures ‘reasonable care’ has been taken. The most popular way to do this is through an independent IR35 contract assessment. These are carried out by an IR35 specialist who will rigorously review all aspects of the contract and, if instructed, the working practices.
Parasol partnering with Qdos
Parasol is partnered with the UK’s leading IR35 specialist, Qdos Contractor, to ensure that every contract is rigorously assessed by an independent expert and that a fair, accurate determination is made. Qdos’ Contractor Status Review facility is an end-to-end IR35 compliance management solution, which includes IR35 status assessments and a wide range of compliance-related tools.
Having specialised in the IR35 legislation since its inception in 2000, Qdos have successfully defended over 1,600 IR35 cases and review thousands of contracts every month.
So to conclude, despite having been in use for over five years, HMRC’s CEST tool is regularly criticised. Its critics – including contractors, businesses, IR35 experts and even the House of Lords – have often outlined their concerns regarding its ability to determine IR35 status accurately.
With over 20 years of experience, Parasol is a trusted provider of compliant umbrella solutions. To find out how we can help you, please request a callback and one of our friendly experts will be in touch.