Small businesses could cause big problems for unaware PSCs
Contractors operating Personal Service Companies (PSC) are likely well aware of the need to be vigilant when it comes to…
New information reveals that HMRC’s CEST tool, was unable to provide an answer regarding a contractor’s IR35 status over 278,000 times between September 2021 and June 2023.
To provide context, HMRC had previously published its Check Employment Status for Tax (CEST) usage data in 2020 which was widely criticized at the time for a high number (19%) of ‘undetermined’ results, where no status is provided to the taxpayer. Following an update 2019 to CEST, ‘undetermined’ status outcomes increased from 19% to 21% from November 2020 to August 2021, which at the time, didn’t connote a marked improvement.
Following a Freedom of Information request made by Ryan Dawson of Kingsbridge, HMRC has provided Kingsbridge with its latest usage data from its CEST tool from September 2021 to June 2023 and Kingsbridge can exclusively reveal the following information:
USAGE BREAKDOWN:
| Outside IR35 | Inside IR35 | Undetermined | Total | |
| Hirer | 496,835 | 171,858 | 198,546 | 867,239 |
| Agency | 10,857 | 5,461 | 3,534 | 19,852 |
| Worker | 172,128 | 121,783 | 76,569 | 370,480 |
Usage data obtained by Kingsbridge from HMRC shows that CEST was used a total of 1,257,571 times between September 2021 and June 2023:
– 679,820 Outside IR35 (54%)
– 299,131 Inside IR35 (24%)
– 278,620 Undetermined (22%)
UNDETERMINED STATUS ON THE RISE
Usage data between September 2021 and June 2023 shows that undetermined outcomes have increased to 22% (1 in 5 of all outcomes) which highlights that CEST is moving in the wrong direction.
As has been highlighted multiple times in the past across the industry, undetermined results given by CEST provide no guidance or clarity around a contractor’s IR35 status. This can and does leave end clients, agencies and contractors less familiar with IR35 in limbo. When CEST cannot return a decision of status, the tax payer is left to seek guidance from HMRC’s employment status manual or contact HMRC directly for further assistance of which neither option is either practical nor easy.
Matt Tyler, IR35 Consultancy Manager at Kingsbridge Comments:
“It’s frankly shocking that even with all the information and data available to HMRC that CEST appears to be going in the wrong direction. You would think, seeing an increase in indeterminate results provided by the tool, HMRC would have revised help text and provided more documentation connected to CEST, or provide more guidance around how to assess status to reduce those numbers. HMRC however seems to be quite content to allow a full fifth of the results CEST outputs to be non-answer, and to provide no further guidance on next steps to take.”
HMRC NO LONGER PUBLISHING CEST DATA
Also included in the freedom of information request is the surprising addition that HMRC will no longer publish CEST usage data beyond what they previously committed to. HMRC Said:
“HMRC no longer publishes CEST usage data as we only committed to do this for December 2020 and the subsequent year.”
This may come as a surprise given that businesses would likely want to see HMRC being transparent about CEST on a more frequent basis.
Ryan Dawson, IR35 Project Manager at Kingsbridge stated:
“This should really be the curtain call for the fundamentally flawed CEST tool, and this data should be a wake-up call to any business still relying on CEST. We have said for quite some time that CEST should be, at best, used as a rough guide to determine status, it is not, by any measure, a conclusive answer to whether IR35 applies.
“Whilst I welcome HMRC’s commitment to improve the CEST tool via the Administrative Burdens Advisory Board (ABAB) annual report in 2022, the cynic within me doesn’t believe the ‘undetermined’ results will reduce any time soon and neither will the trust in the tool itself increase anytime soon either.”
EASING THE IR35 HEADACHE
IR35 is no doubt here to stay, after all it brings in millions of pounds in tax revenue for HMRC. But you can ease the IR35 headache by mitigating the risk of a HMRC challenge to a Status Determination Statement (SDS) with good IR35 counsel.
Since April 2021, there have been in excess of 160,000 IR35 assessments concluded through the Kingsbridge Status Tool, a sure sign that companies are looking at better-quality ways to mitigate their tax liability risks. Our in-house team of IR35 specialists will also manually review any case that is flagged as undetermined, ensuring there is always a 100% determination.
Combining the Kingsbridge IR35 Status Tool with Off-Payroll Protect Insurance, will also help protect your business in the event of a HMRC enquiry.
