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IR35: Is it Wise to Rely on HMRC's CEST Tool?

IR35 reform has been with us since April 2021, and many end clients still rely on HMRC’s Check Employment Status for Tax (CEST) tool to help them complete IR35 assessments. One reason for this is that HMRC have repeatedly promised to stand by the results of CEST. However, can this claim be relied upon, and is it a good idea to base your IR35 strategy on the results of CEST?

WILL HMRC STAND BY THE RESULTS OF CEST?

HMRC have proved that they are willing to challenge the results of CEST, and their promise to stand by it is conditional on “correct information being entered”.

They have also described it as “irrelevant” in court where it didn’t support their case.

In practice, they will stand by the results of CEST only when they agree with them.

ASK NHS DIGITAL:

  • Undertook a considered assessment of each contractor using CEST

  • Assessments have been challenged by HMRC who believe contractors were incorrectly placed outside IR35, even though CEST was used in each case

  • Face an additional tax bill of £4.3 million

  • Now pass every outside decision to an IR35 expert for further investigation

OR ASK THE BBC:

  • Plagued by various IR35 issues, many originanting from their reliance on CEST tool

  • Use of CEST resulted in 92% of their contractors being deemed to be “employed for tax purposes” 

  • Paid £8.3 million on account between April and Sept 2017 to cover tax that HMRC believed should have been paid

  • The cost of their contingent workfore rose by £3.2 million in 2018-19

WHAT DOES THIS MEAN FOR YOUR CLIENTS' IR35 PROCESS?

  • CEST is not suitable for use on its own, and HMRC have proved unwilling to stand by the results.

  • Where your clients are determined to use CEST, it should be supported by other processes, including reviews by independent IR35 experts 

Orange Genie Compliance will assess your clients’ current position, including the size and make-up of their contingent workforce, the contractual arrangements in the supply chain and the working practices in place. They will then make bespoke recommendations based on their findings, and help your client implement the necessary processes to minimise risk and cost while ensuring continued supply.

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