The CEST tool

What is the CEST tool?

CEST tool -The ‘Check Employment Status for Tax’ is an online tool by HMRC, which provides public sector clients information whether the intermediaries’ legislation, known as IR35, applies to an engagement.

CEST presents a series of questions, such as worker’s responsibilities, who determines the scope of work, who decides when, where and how the work is done, how the worker will be paid and whether the engagement includes any benefits or reimbursement for expenses

It was introduced for the public sector in April 2017, in order to help public sector bodies with to determine their IR35 status under the new rules. Although developed for the public sector, HMRC have encouraged its use in the private sector as well.

But instead making things simpler, CEST is worsening the situation.

Many professionals criticized the tool and here are just few of crucial problems.

The tool was continually adjusted and launched far too close to the deadline of implementing the new rules – merely a month before the IR35 reforms were implemented. There was a little time between its launch and the IR35 reform, so there were many problems and they were immediate.

There was no time to assess the tool, call attention to weaknesses and provide feedback.

According to HMRC the CEST tool only provides a determination in 85% of uses,  leaving 15%, probably the most marginal cases in greatest need for guidance, call the IR35 helpline to try to find a determination. It is not known how many of these eventually were given a determination by HMRC or how many were left to make a guess.

CEST tool tends to oversimplify an extremely complex piece of tax legislation.

As a short, survey style questionnaire, the tool lacks the details required to make correct determinations on the tax treatment.

Many questions still require a conversation with the contractor or end client to ensure the relevant answer is being given.

The digital nature of the tool does not provide a context.

The supporting notes are not always enough to omit the misunderstanding of questions, not all answers are answer is not always honest and there is still lot of questions and determinations that should be made individually and subjectively.

Another great issue with CEST tool is absence of one of the key status tests of whether IR35 applies or not – test for Mutuality of Obligation (MOO)

In a webinar for the NHS, a HMRC spokesperson claimed

HMRC claims that an obligation exists in every engagement, so their tool doesn’t test for it.  This omission was purposeful in that they believed it was irrelevant for public sector contractors, despite their encouragement of its use for all contractors. However, this HMRC’s position has been heavily criticized in court.

Having all this in mind, it was inevitable that many of the legitimate contractors have been wrongly employed for tax purposes and we could see the in the public sector – shortages, delays to projects and contractors leaving en masse.

HMRC has admitted, in response to a series of Freedom of Information (FOI) requests, that it has no evidence that CEST is accurate to.

Surprisingly, HMRC continuously defend its accuracy without been unable to support the claims.

With the plan to extend the reforms into the private sector, the worst is yet to come.

Government must reconsider its approach and not risk hitting the whole economy by repeating the same mistakes in the private sector. To regain the trust of industry, government must conduct an independent review of the CEST tool. If the review finds CEST is not up to the job, the only option will be to abolish it altogether.