CEST and Right of Substitution: Ask Andy Answers

Do you have a burning question around the upcoming private sector IR35 reforms? Has CEST got you baffled? Don’t know your right of substitution from your MOO? Wouldn’t it be handy if there was a handy IR35 expert ready to give you the answers you need?

Well, as luck would have it, Kingsbridge has just such an expert ready and waiting to answer your queries. Our Head of Tax, Andy Vessey, has worked with IR35 since its inception – what he doesn’t know about off-payroll working isn’t worth knowing. So, sit back and enjoy a quick break while Andy answers what’s been on your mind this week.

Does IR35 still apply if working for overseas clients fully remotely? Also, when recruiters contact us saying a contract is outside IR35, should we ask for proof? Who is liable if a contract turns out to be inside IR35 even though it was advertised as outside?

In answer to your first question, this will depend on the contractor’s residency status. If they are a non-UK resident then IR35 will not apply because they will be outside the scope of PAYE. However, if a contractor is UK resident despite their working time abroad, then they will have to consider whether or not IR35 applies to that contract.

With reference to a contract advertised as ‘outside’ IR35, this will depend on whether or not the engagement is within the scope of the off-payroll rules for the public sector or, post 6th April 2021, the private sector. If it is, then the end client is responsible for determining the contractor’s employment status.

If not, then the contractor themselves remain responsible for assessing their own IR35 status, so a good starting point would be to ask the recruiter to confirm exactly why they consider the engagement to be ‘outside’ IR35.

I received the following email from a one of my end client’s lead managers: “A couple of months ago I had to carry out a CEST assessment for the role you are currently doing. The outcome of the assessment was indeterminate and further information is required. Could you provide the following information as soon as possible: How much time per week is spent working for us vs. working for other clients?”

I work for this particular client 40 hours per week, and also a small engineering consultant for around 16 hours per week at the minute. 

Is the question from my client a trick question? What is the CEST assessment looking for? Should it be a 50/50 split?

The question is not a trick question. CEST asks, “Will this work take up the majority of the worker’s available working time?” By doing so, it is considering how much of your time will be taken up by the client’s contract. This is looking to understand how much time you commit to this client and how much time you have left available to do work for other clients.

The key word is “majority”, so the answer to the CEST question is ‘yes’ because you only work 16 hours per week for the small engineering consultancy.

I am a food production engineer working as a contractor in the food industry. I have business premises and an apprentice. I have stepped down as a director because of IR35 to pay myself a wage. My wife is the director still and has been for the last 11 years. is there anything else I need to watch out for to avoid IR35. I will be paying myself minimum wage before IR35 comes in.

IR35 applies to workers who have, together with associates (which includes a spouse), a material interest in any PSC or could receive payments or benefits from the PSC which are not employment income but could reasonably be taken to represent remuneration for services charged to the client by the PSC.

A material interest usually means controlling more than 5% of the company’s ordinary share capital. If therefore you or you together with your wife hold the majority of your company’s shares, then you need to consider whether or not IR35 applies to each of your contracts.

This will require consideration of all the necessary tests of employment status but you come from a good starting position as your company has its own business premises and employs an apprentice. These are strong pointers towards self-employment.

Paying yourself a wage will only mitigate the consequences of a contract being deemed ‘inside’ IR35 and only then if all of the income is subject to PAYE tax and NIC in the first instance.

How to Ask Andy…

If you have your own question to submit to Andy, you can use our straightforward form and Andy will do his best to answer via email and on our blog.

In the meantime, if your IR35 preparations are stepping up a gear, make sure you take a look at our IR35 Protect insurance and our Kingsbridge Status Tool – a brilliant alternative to CEST.