For quite a long time, it has felt like contractors have got the rough end of things from HMRC. Having to deal with poor legislation and a sense of ignorance towards how they really work has been par for the course for contractors for a number of years. But research now shows contractors put off by CEST tool judgments is growing.
It seems in recent times that the relationship between the two has become even more fraught. The prospect of IR35 reforms in the private sector loom large. A distinct lack of engagement and transparency from HMRC when it comes to hearing contractors’ views on the matter is not helping things.
HMRC has looked to reinvent the manner in which IR35 is enforced. Most notably this was done via the reforms that were introduced to the public sector last year.
IR35 heading to the private sector
It seems fairly likely that these reforms are already certain to come to the private sector in the not too distant future, the idea is very much at the forefront of HMRC’s thoughts.
All this is indicative of HMRC wanting to take any power contractors once had away. One tool contributing to this is the CEST tool. This is ostensibly used to dictate whether a contractor is inside or outside IR35.
Contractors have always been very stringent and careful to ensure they are on the right side of the IR35 line. An investigation from HMRC is the last thing they want. The vast majority of contractors have been particularly and rightly careful in years gone by.
But with the introduction of the CEST tool, the decision process is being erased of its human element. Power is instead being placed into the hands of a system that has done little to inspire confidence thus far.
Contractors put off by CESTtool judgments
If the tool is therefore introduced, the effects could be catastrophic. In fact, research this week released by Qdos Contractor indicates that as many as 81% of contractors would be put off working through a recruitment agency or with a business that used the CEST tool as their only way of deciding IR35 status.
The CEST tool – which stands for Check Employment Status for Tax in case you weren’t sure – has been adopted by a number of companies and agencies in the public sector following the reforms last year.
But the reliability of the tool has consistently been brought into question. Its methodology and what it does and does not include in its calculation seems to render it unsuitable. As a result, the scepticism towards the tool in the contractor community remains palpable.
If the IR35 reforms do come to the private sector, it will be a big decision by the agencies and companies in question as to whether or not they choose to utilise the CEST tool. If they do, they must accept that using contractors will be a far more difficult task moving forward.