Should HMRC’s CEST Tool Be Scrapped?

Newly obtained data shows it’s just getting worse

The HMRC’s CEST tool (Check Employment Status for Tax) did not do well in a recent whitepaper published by Kingsbridge. Despite being in place since 2017, the survey results showed that 50% of contractors still don’t trust the tool, while 34% of contractors and 37% recruiters said they would choose not to work with a client based on their decision to use the CEST tool.

Ryan Dawson, IR35 Project Manager at Kingsbridge, talks through a response to a recently obtained Freedom of Information request submitted by Kingsbridge from HMRC, which shows why there is still so much distrust around this controversial tool.

The Freedom of Information request includes the notable addition that HMRC will no longer publish CEST usage data. They said: “HMRC no longer publishes CEST usage data as we only committed to do this for December 2020 and the subsequent year.” This may come as a surprise given that businesses would likely want to see HMRC being transparent about CEST on a more frequent basis.

It appears that HMRC don’t want to show that despite the tool’s upgrade in 2019, usage data highlights ‘undetermined’ status outcomes have increased from 19% to 21% from November 2020 to August 2021, which at the time, didn’t connote a marked improvement.

In fact things seem to be getting worse – new figures provided now show that since August 2021, CEST has produced an increased percentage of ‘undetermined’ results. The usage data from HMRC showed that CEST was used a total of 1,257,571 times between September 2021 and June 2023, producing the following results:
– 679,820 Outside IR35 (54%)
– 299,131 Inside IR35 (24%)
– 278,620 Undetermined (22%)

The data clearly shows that undetermined results have gone up from 21% to 22% – still just over 1 in 5 outcomes have no results at all.

Ryan commented, “Whilst this is only a slight increase of undetermined results, any increase at all is not good enough. This evidently shows that CEST is moving in the wrong direction and is yet more proof that the tool is leaving businesses in limbo, unsure of whether an engagement should be inside or outside of IR35.”

Recent high-profile cases only add to the fact that even HMRC will ignore their own tool when it suits them. Kingsbridge believes this should really be a curtain call for the fundamentally flawed tool, and this new data should be a wake-up call to any business still relying on CEST for their determinations.

Ryan stated, “We have said for quite some time that CEST should be, at best, used as a rough guide to determine status, it is not, by any measure, a conclusive answer to whether IR35 applies. Whilst I welcome HMRC’s commitment to improve the CEST tool via the Administrative Burdens Advisory Board (ABAB) annual report in 2022, the cynic within me doesn’t believe the ‘undetermined’ results will reduce any time soon and neither will the trust in the tool itself increase anytime soon either.”

In 2020 the house of Lords released a report titled ‘Off-Payroll working: treating people fairly’ in which they extensively interrogated whether CEST was fit for purpose, ultimately stating that the tool fell well short of what is required for a fair and accurate employment status determination.

IR35 is no doubt here to stay, after all it brings in millions of pounds in tax revenue for HMRC. But businesses and contractors alike, can ease their IR35 headache by mitigating the risk of a HMRC challenge to a Status Determination Statement (SDS) with good IR35 counsel.

Since April 2021, there have been in excess of 160,000 IR35 assessments completed through the Kingsbridge IR35 Status Tool, a sure sign that companies are looking at better-quality ways to mitigate their tax liability risks. Their in-house team of IR35 specialists manually review any case that is flagged as undetermined, ensuring there is always a 100% determination, which is clearly something the HMRC CEST can’t do.

Kingsbridge Whitepaper
IR35 Status Review

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