CEST is not best: inefficiencies, inaccuracies, and a hung jury
The Check Employment Status for Tax (CEST) tool has been a source of contention since its launch in 2017. The…
Just as CEST’s single new question gets deemed ‘inadequate’, a historically ‘outside IR35’ scenario comes back as ‘unable to determine.’…
Just as CEST’s single new question gets deemed ‘inadequate’, a historically ‘outside IR35’ scenario comes back as ‘unable to determine.’
Kingsbridge is standing by its characterisation of HMRC’s update to the Check Employment Status for Tax (CEST) tool being nothing more than a “facelift”.
The IR35 insurer’s representatives were contacted by a CEST-using lawyer, who said “those…saying it’s just a facelift haven’t done their homework”.
But Kingsbridge’s Ryan Dawson, who made the ‘facelift’ jibe, maintains that a ‘nip and tuck’ really is all HMRC did to its IR35 tool on April 30th.
“There has been no material change whatsoever to the software”, Mr Dawson, Kingsbridge’s IR35 Project Manager, said yesterday.
“The minor nature of the CEST refresh is reflected in the fact that its underlying logic hasn’t changed either, which HMRC has confirmed.”
The lawyer behind the ‘homework’ jibe said on May 8th that they were still “working through the updates”, hinting the CEST changes to be significant.
Trying to see the lawyer’s point of view, Dawson conceded that a new starter question on CEST has the appearance of being significant.
This CEST “pre-entry question” (as Dawson calls it), relates to Mutuality of Obligation, asking the user “Do you have or will there be a contract in place?”.
But while the new query “seeks to address criticisms of CEST”, it is “far from adequate”, for two reasons, says Katie Harris, of Pennington Manches Cooper.
“It may sound like a simple question, but whether or not a legal contract is in place can be a complex question to answer”, says Harris, outlining reason one.
“Many laypeople using this tool…are likely to interpret this as meaning ‘Is there a written contract in place?’ which will lead to false negatives.”
Taking to LinkedIn about why else the seemingly most significant new change to CEST is ‘inadequate’, Harris, a senior employment law specialist, said:
“The [question’s] accompanying explanatory note – ESM11036 – states that a contract will be in existence if:
(i) the engager is obliged to pay a wage or other remuneration; and (ii) the worker must be obliged to provide his or her own work or skill.
“[However] the latter…conflates the issue of mutuality…with that of personal service…And again, [it] may lead to incorrect or misleading answers.”
Faced with the question, HMRC advises CEST users in the Employment Status Manual (ESM) that a contract is “an agreement between two or more parties which is intended to be legally binding”.
The Revenue adds that a contract “can be written, verbal, implied or a combination of these”.
Thanks to HMRC’s two-part explainer, “one would hope that most contractors and businesses would understand”, says ReLegal Consulting, an off-payroll rules advisory.
But pointing out that ‘the very audience [CEST] is targeted towards are laypeople’, Harris fears that HMRC’s explanation may not be enough.
“I wonder how many people using the tool would have the knowledge to be able to identify whether a contract could be implied in their specific circumstances?”
“In any event”, Harris continued in a statement online, “the point is moot since [CEST] users have to answer ‘Yes’ to this question, or they can’t proceed.
“In addition, the question of mutuality of obligation is not dealt with elsewhere in the CEST tool.
“But it is still a relevant factor at the final ‘other factor’s stage of the test. Either way, it remains wholly problematic.”
Actually, “wholly problematic” is an extremely polite way to describe how one newcomer to CEST was made to feel by the government’s IR35 tool.
“One of my connections said, ‘I’m not a f**king student!’ after feeling like CEST was a test they were being forced to pass”, shared IR35 adviser Brett Edyvane.
Managing Director at Roxel Resource Ltd, Brett Edyvane, sympathised:
“I get it. But, using HMRC’s CEST tool properly is like checking a map before a long drive.
“It’s not about passing a test, it’s about avoiding wrong turns that cost you time, money, and peace of mind.”
Not dissimilar to a map, CEST is “quick, free, and efficient”, argued Ms Harris of Pennington Manches Cooper.
That said, the senior employment law specialist recommended that CEST “should not be the only tool” that end clients use to test IR35 status.
It’s Dawson’s position too – that CEST ought not be used in isolation – as he spelt out on the Kingsbridge Blog 24 hours before his ‘facelift’ quip.
Eileen Breeze, Founder of BoostPay, also indirectly backed another of Dawson’s points – that the CEST update consists of six main components.
In a rundown of her six, she entitled one “Added Guidance” so the tool’s users can “better understand the questions and implications of their answers”.
And for component four – “Updated Algorithms”- she endorsed HMRC making technical tweaks to ‘reduce the instance’ of CEST’s “unable to determine” results.
But a bit like the lawyer who differs with Dawson, the IR35 Project Manager here differs with Breeze.
First, on the guidance front, Dawson acknowledges that HMRC’s “updates to ESM entries” do offer “new help on how to answer CEST”.
“But really, users would probably have preferred key guidance updates to be embedded into CEST, rather than them being left to live elsewhere in the ESM.
“Furthermore, why didn’t HMRC just update the questions to better reflect their newly updated guidance, to make things even easier to align with ‘answer and question intention’?”
Turning to the frequency of CEST being indeterminate, Dawson said testing HMRC’s ‘new’ CEST with one of its former officials uncovered an increase in neither ‘inside IR35’ nor ‘outside IR35′ outcomes.
The IR35 Project Manager revealed: “I put the ‘new’ CEST through its paces with our veteran IR35 expert Andy Vessey, who used to work for the tax authority. And it was revealing.
“He referenced that according to HMRC, the April 30th CEST changes ‘will make it easier to use the tool and receive an accurate outcome’.
“Well, we were able to quickly dispute this bold claim. Vessey ran a contracting scenario through it whereby, historically, one would expect an ‘outside IR35’ outcome all day long. Yet somehow, worryingly, new CEST choked – it could not determine the IR35 status.”
Mr Dawson added: “On reflection, then, with my ‘face lift’ description still seeming fitting, all we really can thank HMRC for is its attempt to simplify CEST’s language.
“IR35 insurers like us, the contractors we help, and others in the supply chain we support are pleased at the simpler wording from HMRC. Just don’t call it ‘significant’.”
Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. As mentioned above, the CEST tool shouldn’t be used in isolation and we’d always recommend seeking professional advice when assessing your IR35 status.
At Kingsbridge we offer tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape. We also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.
To find out more, get a quote or contact us today.
Simon Moore is a journalist with NCTJ-approved journalism training, who has worked inside the newsrooms of local, consumer and national media titles.
He today writes news and features for trade publications specialising in freelancing, small business and the self-employed. Simon’s articles have been linked to by The Daily Telegraph and the biggest newspaper website in the world, MailOnline. He was appointed to be a judge at IPSE Freelancer’s Awards 2023.