HMRC Revamps Cest IR35 Off Payroll Working Tool

IR35 off payroll rules are already applied on contractors engaged in the public sector from April-17 and the rules will be extended to medium & large sized private companies from April 2020. After applying IR35 off payroll rules in the public sector, the response received from the agencies/end clients was not good as they were not able to understand and apply the IR35 rules properly, which resulted in blanket assessments for many contractors. CEST tool developed by HMRC also failed to give the right results for the employment status of the contractors in most cases, which added to the complexity for agencies and end clients.

CEST tool has been part of a big controversary from last 2 years since its launch with many in the contracting industry claiming that in many instances, it produces flawed results and fails to determine the accurate nature of work as well as the employment status for the contractors.

The long-awaited change to the CEST tool has finally happened, with HMRC launching the CEST version 2 recently. In the updated version some key improvements have been made, the most important being, if the engager (business requiring services) doesn’t know the worker, then the tool will not ask any question about their circumstances.

Also See: Off-Payroll Working Rules Private Sector

Also See: Proposed Changes in Private Sector IR35 Rules

Statement by Tax director & Chairman of CIOT’s employment taxes sub-committee “Colin-ben Nathan”

Tax director & Chairman of CIOT’s employment taxes sub-committee “Colin Ben Nathan” says –

1. The changes made by HMRC are helpful but individuals are still facing fundamental issues in determining a worker’s status.
2. There are no real statutory rules defined by HMRC in IR35 context and it is very difficult to access the employment status.
3. It looks like that CEST tool is reproducing effects of various decisions taken at tribunals on the issue which is no big achievement.
4. Ben-Nathan also highlighted that when we input the information into CEST tool, it produces “cannot determine” result many times which is not of any help to the contractors.
5. There is an alternative to settle such queries with the help of dispute procedure but it takes long time to arrive at a solution.
6. It is also difficult for individuals related to niche sectors like media, film & TV to determine their employment status as CEST tool does not work properly in some particular circumstances.

What HMRC says?

• HMRC says that the main aim of updating CEST tool is –

  • To make it more clear
  • To reduce errors
  • To consider more detailed information
• HMRC also said that the CEST tool was accurately tested by officials & external experts against case law & settled cases.
• HMRC also said that information inputted in the CEST tool is accurate and in accordance with our guidelines

Statement by Employer solutions tax partner at RS “Susan Ball”

1. Employer solutions tax partner at RS “Susan ball” said that only 30 questions are updated or included in the CEST tool for the first time. Several industry bodies as well as 300 stakeholders were invited to use the new version and post their valuable comments.
2. Ball also pointed out that CEST produce answer in 85% of cases only.
3. Ball also said that CEST only proves to be accurate in cases where the employment status is reasonable clear.
4. Ball also added that CEST tool has been criticized for not providing a reliable answer in more borderline or challenging cases.

Statement by IPSE deputy director “Andy Chamberlain”

• Deputy Director of IPSE “Andy Chamberlain” said that the changes made to the CEST tool are not enough as still there is no mutuality of obligation between the contractors and their clients which is a big flaw.

• Andy Chamberlain also said that HMRC will unable to reach at the right decision of determining the employment status until CEST takes into account the following –

  • Mutuality of obligation
  • Multiple engagements
  • Contractual benefits such as maternity/paternity pay, holiday pay etc.

Conclusion

It looks like HMRC is not able to update CEST tool as the way industry was expecting it to be. Only 4 months are remaining in the launching of IR35 off pay rules in the private sector, but agencies/end clients are still not satisfied with the CEST tool and the way of determining employment status for their contractors.

Also See: Important Case Study for Contractors in IR35

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.