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Five reasons why HMRC’s CEST tool is flawed

Five reasons why HMRC’s CEST tool is flawed

CEST has long been criticised as not being fit for purpose. In this article, we explain why.

Since its launch in February 2017, HMRC’s online tool used for determining a workers’ employment status for tax purposes, has been known for providing inaccurate results.  Only last week, news came to light which suggests that HMRC knew CEST was flawed before making it public.

Yet contractors in the public sector are still being held to ransom by inaccurate determinations and blanket approaches. Many are being wrongly employed for tax purposes, others are being exploited. In some cases, they are even being taxed at a rate higher than traditional employees.

The fact that HMRC has lost three out of four recent IR35 cases proves just how complex the intermediaries legislation is. Yet its online assessment tool is far too simple. It is incapable of keeping up with the intricacies of contractor working arrangements.

In a series of blog posts this week, the Association of Independent Professionals and the Self Employed (IPSE) is exploring the CEST tool and why it is wholly inadequate. Here are five top reasons:

1. Based on no user feedback

Contractors, clients and agencies had scant time to assess the tool, point out flaws and provide feedback before it launched. Unless the first rendering tool was perfect from the outset, many thousands of engagements could be inaccurately assessed.

2. Poor accuracy

According to HMRC, the tool is unable to make a determination in 15% of cases. It is likely these are the most marginal cases, therefore the tool fails to accommodate for the cases in greatest need of guidance. Surely longer testing and more feedback would have reduced this?

3. Oversimplifying complex legislation

CEST oversimplifies what is an incredibly complex piece of tax legislation. A short questionnaire, it lacks the intricacies required to make correct determinations on the tax treatment of engagements that should be made individually and subjectively.

4. MOO unaccounted for

One of the glaring examples of CEST’s lack of depth is the absence of a test for mutuality of obligation (MOO) – one of the central tenets of whether IR35 applies or not. HMRC believes that an obligation exists in every engagement, so their tool doesn’t test for it. Yet a court ruling has rejected this claim.

5. Lack of guidelines

Public sector clients are now responsible for making determinations about a piece of legislation they, understandably, have little grasp of. Having never had to consider IR35 previously, they now have little choice but to rely on CEST.

With the government now intending to extend the reforms into the private sector, IPSE warns that the problem could worsen.

“Using the CEST tool may not be mandatory, but public sector hirers feel compelled to use it because IR35 is so complex they don’t know how else to make these difficult determinations. And HMRC have said they will stand by the results of the tool,” said Chris Piggot-McKellar, IPSE’s head of press. “How can the government, in good conscience, even consider extending the ill-judged IR35 changes to the private sector without fixing fundamental problems with the CEST tool?”

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