HMRC have revamped their ‘Check Employment Status of Tax’ (CEST) tool, in readiness for the off-payroll working rule changes taking place early next year.
From April 2020, the off-payroll rules are extending to medium and large-sized private end-users, making them responsible for determining the IR35 status of their workers. If a worker is, in practice, an employee, they will fall within the IR35 regulations, making the end-user responsible for deducting tax under PAYE and paying NICs and, if applicable, the apprenticeship levy. Failure to correctly classify the employment relationship and apply IR35 can result in back payments and fines.
However, there is no precise legal test for determining whether an individual is an employee for the purposes of IR35. While years of case law have established a number of factors to be taken into account, making the determination can be challenging.
To help, HMRC released CEST in 2017. CEST is an online questionnaire that provides HMRC’s view on an individual’s employment status for tax and NICs purposes, based on the information provided. As long as this information is correct, HMRC will stand by the determination of CEST. However, the tool has been plagued by bad reviews, with HMRC themselves admitting the limitations of the tool and its inability to provide answers in 15% of cases.
Accordingly, the tool was reviewed as part of HMRC’s preparation for April’s changes. As part of this review, HMRC worked with more than 300 stakeholders and tested rigorously against case law and settled cases by official and external experts.
The new version is officially live here, with noticeable updates including:
- A complete redesign;
- Clearer questions;
- New questions on substitution, business on own account and the provision of equipment; and
- The ability to use the tool for indicative purposes before full details are known.
In addition, HMRC has published new guidance in its Employment Status Manual, to assist users in making their determination.
While the new updates will certainly make it easier for end-users, agencies and workers to determine their employment status, this is still a complicated area of law. Furthermore, the new tool still fails to take into account mutuality of obligation – something that has been a deciding factor in a number of recent IR35 cases.
We will have to wait and see how well the latest version of CEST performs under the new off-payroll working rules in April 2020. In the meantime, if you’d like to know more about how you can prepare for IR35 and assess your current working arrangements, get in touch today.