HMRC’s CEST Tool is failing 1 in 5 cases – What can contractors do?

It’s been reported by the tax watchdog that HMRC’s own CEST Tool for checking IR35 status has been failing to provide a…

Author Photo by Olivia Bufton

It’s been reported by the tax watchdog that HMRC’s own CEST Tool for checking IR35 status has been failing to provide a conclusive result for 1 in 5 contactors. That’s based on figures for between November 2019 and November 2020, where CEST was used 975,416 times. Interestingly 52% of cases were found to be outside IR35, while 29% were found to be inside.

However, 19% of the time – that’s 188,791 individual cases – CEST gave an indeterminate result, basically meaning the tool could not make up its mind, leaving contractors and end clients none the wiser. This, as you can imagine, isn’t too helpful when clients and contractors both want an accurate Status Determination Statement (SDS) that will work to the benefit of both.

What you need to know about CEST

CEST (Check Employment Status for Tax) is HMRC’s free tool designed to give contractors and end clients the IR35 status of any given engagement. It’s entirely based online and asks several questions about your working practices.

You (or your end client) choose the answers that best suit your situation as regards that particular contract, and then it gives you a result of inside IR35, outside IR35, or indeterminate – which is reserved for borderline cases where it’s too close to call.

However, CEST has been widely criticised for not giving a full picture. For one thing, HMRC disregards the importance of mutuality of obligation (MOO) in determining IR35 status. They claim that MOO (the obligation of a client to offer work and a contractor to accept it) is a given in any contract and therefore doesn’t need to be looked at.

However, this is taking MOO down to its irreducible minimum and not really looking at the nuances at all. And, in fact, MOO has been the deciding factor in several high profile IR35 cases, including that of TV presenter Helen Fospero, who won her case against HMRC.

Another big problem with CEST is that if you receive an indeterminate result, you are told to double check your answers or call HMRC. However, HMRC staff will be singing from exactly the same hymn sheet as CEST and so are unlikely to be able to clarify things much further unless it transpires you’ve accidentally made a glaring omission when completing the form.

What alternatives to CEST are there?

You’ll be pleased to note that CEST is not the only IR35 determination tool out there and that there are better options available that can give you and your end client a much more accurate, reliable determination – even if your case is borderline. The Kingsbridge IR35 Status Tool is unique, in that it’s a hybrid tool, giving you the efficiency of an automated service, but the thoroughness of a manual review.

The first thing you need to know about Kingsbridge’s tool is that it was developed by Head of Tax Andy Vessey. Andy has worked with IR35 legislation since it was first introduced back in the year 2000. During that time, he has defended more than 500 IR35 cases against HMRC and he has won almost all of them.

Right from the start, then, you know you’re in safe hands. 

In developing the tool, Andy has created a series of yes/no questions, of which you’ll answer between 29 and 34, depending on your circumstances. These help to provide a full view of your working practices and contract wording in order to ascertain your own unique situation. Answer these questions to the best of your ability and then one of two things will happen:

  1. The tool will issue you with an inside or outside IR35 status, along with a comprehensive report detailing the positives and negatives of your particular case.
  2. The tool will let you know that your result is borderline and pass it over to one of our in-house IR35 specialists. They will perform a manual review (possibly coming back to you with some more questions if necessary) and then issue you with your status and report within five working days.

Either way, you and your end client can have complete confidence in the result without any need to waste time contacting HMRC with queries. If you’re found inside IR35, you may want to discuss with you client if there are changes you can make to your contract or working practices so that you can move outside (the report will help you see what you might need to change), or your client can go ahead and issue your SDS.

Regardless, you can be confident that the result is the correct one, giving you peace of mind that you a) aren’t being over-taxed, and b) won’t be hauled in front of HMRC to be presented with a large bill at a later date.

How to access the Kingsbridge IR35 Status tool

Nothing could be easier, simply click here to get the ball rolling on your status test. The test costs £50 plus VAT per status review. However, if you hold our IR35 Protect (Premium) insurance then you have unlimited access to the tool at no extra cost.

With the private sector IR35 reforms launching in just a few weeks, now is the time to make sure you know where you stand with regards any current or upcoming engagements that will go beyond 6th April so that you can put yourself in the best possible position while maintaining client confidence.

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Contractors IR35