Government plans to fix CEST tool amid IR35 reform

Government plans to fix CEST tool amid IR35 reform

Minutes from the most recent IR35 Forum meeting confirm that HMRC will attempt to fix its flawed CEST tool.

CEST is an online assessment service workers use to verify whether they should be classed as employed or self-employed for tax purposes.

The tool has long been criticised as not being fit for purpose. It is known for providing inaccurate results. Many say it is far too simple and incapable of keeping up with the intricacies of contractor working arrangements.

The IR35 Forum is a group of external stakeholders who meet with HMRC to improve the way IR35 is administered. In their latest meeting – on 30 August – CEST and mutuality of obligation (MOO) were the key points of discussion.

Room for improvement

Forum members said that CEST required improvements to work more effectively in the larger and more diverse private sector. Areas of concern included: MOO; how CEST dealt with cases where an individual had a range of engagements which suggested they were in business on their own account; and that it should reflect the outcome of litigation since its introduction in March last year.

HMRC confirmed it is already looking to improve the CEST tool. It said there are several litigation cases awaiting judgement, which are likely to help clarify some of the remaining points of difference between HMRC and some stakeholders.

Two possible options to improve CEST are being considered. These are to include information about MOO on the CEST landing page, and to redraft HMRC’s position paper on MOO to include additional material.

MOO information to be revised

HMRC acknowledged that its interpretation of MOO currently differs to others. At the moment it doesn’t test for MOO in CEST because it assumes it is present in all contractor engagements. Court rulings – cited in the cases of Armitage versus HMRC and Smith versus Pimlico Plumbers – have deemed otherwise.

HMRC has committed to revise its information about MOO and update the forum once it has decided how to improve CEST.

However, it did add that there needs to be a balance between a tool that is simple and straightforward with a relatively small number of questions, suitable for the majority of customers, and attempting to cover every eventuality.

At the moment, CEST provides a decision in 85% of cases. Detailed guidance is available for more complex cases where CEST does not provide an outcome.