HMRC has confirmed its plans to attempt to fix its flawed Check Employment Status for Tax (CEST) tool with the publication of the latest IR35 Forum minutes.
CEST and mutuality of obligation (MOO) were the key points of discussion during the meeting, held on 30 August 2018. The taxman also announced plans to produce a revised note on MOO and to consider providing additional guidance on completion of CEST.
HMRC stated that it was already looking into ways to improve CEST ‘as part of normal good practice’ and promised to work with stakeholders to better understand numerous concerns regarding the tool raised in responses to the Off-Payroll working in the private sector consultation.
CEST and MOO prove key points of contention for Forum members
Central to CEST’s failings is its failure to consider MOO under the taxman’s assumption that MOO is present in all contractual engagements. HMRC’s flawed interpretation has been rejected by IR35 Forum members and disproven in multiple recent tribunal cases. Unsurprisingly, it was among a number of concerns shared by Forum members, which also included:
- CEST’s failure to handle cases where an individual has a range of engagements
- That CEST should reflect the outcome of litigation since March 2017
- That CEST isn’t suitable for the larger and more diverse private sector.
In addition to attempting to fix CEST, HMRC announced it would consider redrafting and expanding its position paper on MOO to cover what the taxman described as ‘competing arguments’ about its significance where there is a succession of short engagements.
HMRC also addressed the issue of non-compliance with Off-Payroll among agencies and umbrella companies. It concluded that non-compliance is largely deliberate rather than a result of a lack of awareness. As a result, it rejected proposals to publish best practice standards, which it claimed would likely be ignored and has instead published a Spotlight article on the issue.
Striving for simplicity won’t help CEST
While the contract sector welcomes HMRC’s acknowledgement of CEST’s shortcomings, its comments concerning its desired outcome for the tool suggest that it is still failing to take on the advice of experts. The Forum minutes state:
‘HMRC commented 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.’
“As long as HMRC continues to prioritise simplicity over accuracy, CEST will continue to fall a long way short of what is required of an employment status tool. This has been our message all along to HMRC,” comments Chaplin.
“You can’t reduce decades of employment case law to a few simple questions, which is why CEST has been roundly rejected by experts and why it has continually been shown to provide incorrect outcomes.”
Chaplin concludes: “Having announced plans to offload the responsibility for IR35 compliance onto UK firms, HMRC should feel an obligation to mitigate the administrative burden that it imposes. But continuing to tweak a tool that is ideologically flawed is only going to give rise to further issues.”