Written by Paul Chappell
Published on December 18, 2019
Review of HMRC's new CEST tool

This is the third blog in my IR35/Off Payroll Intermediaries series. Of course much can happen before the 6 April 2020, when it is the turn of the private sector to join the IR35 party. There have been rumblings from Parliament that IR35 may be reviewed. However it is perhaps prudent to continue with our planning for 6 April 2020, hence blog number 3. This blog reviews the reincarnation of the CEST tool that HMRC have developed with 6 April 2020 in mind.

I kindly received an invitation from CIPP to be involved in the development work in conjunction with HMRC so I have a detailed insight into what has gone into the new tool. ‘The Good, The Bad and The Ugly’ is perhaps a fair representation of the new tool.

The Good

I am a glass half full chap so let’s start with the positives. Despite representations from certain parties, the new tool is a significant improvement on the previous, not fit for purpose, tool. Some commentators have the same feeling about this tool, an unfair view I feel.

Although many people may not consider a lengthier tool to be good, I disagree. In testing, using real life examples I have encountered in my day to day work, the new tool took around 15 minutes to go through. The questions are more thought-provoking (no bad thing there given the importance of getting employment status correct) and certainly more extensive

The ’office holder’ question remains, as you would expect, and given short shrift by CEST. If a worker is an office holder then CEST comes down quickly on the side of employment.

The extra time taken with this tool takes in account more detail questions on the terms of engagement, reviewing in detail substitution and control. Sadly, though, not mutuality of obligation (more later!)

My experience of employment status and the requirements to be employed or self-employed have been borne out from my use of the tool. So, in that respect, the ’Good’ element of the review is to report that CEST is a positive help to engagers seeking to establish IR35, or indeed an employment status ruling.

As long as the tool has been used in good faith and all answers represent the terms of the engagement, HMRC will accept the result.

The Bad

Employment status is very much subjective hence the requirement for Tax Tribunals. The tool will, provide three outcomes.

  1. Employer
  2. Self-employed
  3. Unable to provide a determination.

It is this final outcome that provides the ‘Bad’.

CEST advises engagers to contact a special helpline for assistance and guidance from HMRC. There are a couple of issues I particulaly have with this approach.

Firstly, who mans the helpline and what experience do they have with employment status?

Secondly, and, I think this partly answers the first query, officers are telling users of CEST to ‘try again’.

Given that HMRC’s assurance that the CEST tool will be adhered to, how can they justifiably tell engagers to try again? To achieve a result will require amendments to certain answers.

Employment Status is a specialist area. CEST is certainly an asset and will give the correct result in a large number of cases, it is a shame that HMRC are not providing additional expertise to back up CEST

The Ugly

This is a simple one, mutuality of obligation (MOO) is a startling omission. Why? Well MOO is a central plank of the famous case of Ready Mixed Concrete, but perhaps more of a concern is the recent Tax Tribunal case of Richard Alcock Consultancy Ltd, where the outcome of the case rested largely on MOO.

Although the First Tier Tribunal does not set a decision in stone, until and unless it is appealed against and taken before the Upper Tier Tribunal, it is nevertheless worrying that HMRC continue to ignore MOO. The result of the Alcock case did come out at the very ending of testing CEST, however it would have been sensible to consider this case (and others) and incorporate MOO before releasing the CEST tool.

HMRC want engagers to get status right first time, then tie their hands behand their backs and force them down the expensive route of the Tribunal system for resolution.

Let’s finish on a positive note, the new CEST is a vast improvement on the old model and I would encourage all engagers to use CEST as part and parcel of all engagement processes

For more details contact Paul Chappell Head of Legislation and Compliance at Dataplan Payroll Ltd on 03331 123456