IR35: Alternatives to CEST
The reform of IR35 legislation has left contractors wanting to check their IR35 status, to give themselves peace of mind that their end client has taken the correct approach when issuing a Status Determination Statement (SDS).
HMRC’s Check Employment Status for Tax (CEST) tool has long been a controversial topic when it comes to IR35. It has been widely criticised by experts and contractors alike for not being fit for purpose, offering a simplistic tool to tackle enormously complex legislation. So, what are the problems with it?
1. HMRC didn’t take any feedback into account when launching the tool, so it had not properly been tested by contractors, clients or recruiters.
2. It’s simply not accurate enough, with HMRC reporting that the tool has provided a determination for at least 85% of uses - leaving a potential 15% of users with an indeterminate result. Of course, the likelihood is that these are borderline cases, which are exactly the cases that need help with their determination.
3. It’s too simple and lacks intricacy, failing to account for the unique nature of every contractor engagement.
4. It has little weighting on Mutuality of Obligation (MOO), one of the main status tests, with HMRC claiming MOO exists in every engagement, despite losing several cases where the judge ruled that MOO did not exist.
But is there anything better out there? Actually, there is. There are several automated and manual services out there to help contractors and end clients determine the contractor’s status on any given engagement, but what are the pros and cons of each?
Fully automated IR35 status tools
CEST is just one example of a fully automated status determination tool, and there are others out there. As they are automated, they tend to be cheap to access and offer fast, if not instant, results. But – and you knew there was a ‘but’ coming on – they all run into the same issues as CEST. Namely, they are too simplistic to tackle the problem, and they fail to give an accurate answer when it comes to borderline cases. They’re just too blunt a tool and, while they can give contractors a rough idea of their status, they probably shouldn’t be relied on by themselves without a more nuanced approach to accompany them.
Fully manual IR35 status determination services
Fully manual services are delivered person-to-person, usually in the form of a manual review of your contract, and an interview about your working practices. They allow for an in-depth look at your engagement and, as such, the results are usually highly accurate, even in borderline cases. You’ll probably also get a more in-depth response, with a full report from the specialist reviewing your case. However, with this comes a cost and so they tend to be on the expensive side when compared to automated reviews, and they won’t give you instant results. You’ll probably have to wait a few days for your case to be reviewed. If your engagement is fairly clear-cut, this is probably an unnecessary wait and expense.
A hybrid IR35 tool with the best of both worlds
The final option available to contractors, recruiters and clients is a hybrid tool. This would typically combine the best of both; a fully automated tool, which asks a series of questions to ascertain IR35 status, paired with manual intervention by a human for any indeterminate results. The main advantage of a tool with this functionality is it can save you time and money over a fully manual tool, while still giving you a comprehensive report and ensuring your result doesn’t get stuck in limbo like the CEST cases.
Interested in a hybrid solution? Take a look at the award-winning Kingsbridge Status Tool. The tool has been developed by Andy Vessey – Kingsbridge’s Head of Tax with more than 20 years of experience working with IR35 legislation, successfully defending over 500 cases. It asks between 29 and 34 carefully worded questions with yes or no answers (the number of questions adapts depending on those answers, it’s that responsive). This level of nuance allows the tool to take a full view of your contract and working practices to come up with a status determination. If your result is indeterminate, it simply gets handed over to our in-house IR35 team for a manual review before your result is issued. All for just £50 plus VAT. Find out more or begin your status assessment here.