IR35 Employment test updated

HMRC has released an updated Check for Employment Status for Tax (CEST) service, used to find out whether a contractor or employer should be classed as employed or self-employed for tax purposes, and in-line with IR35 legislation.

On 6 April 2020, IR35 rules, which currently apply to the public sector, will also come into force in the private sector. The tool was originally created in March 2017 by the government to check employee statuses.

Criticisms had been levelled at the tool since, with many saying that it is not fit for purpose, often not delivering a definitive answer in cases where the employment status is more borderline or challenging.

HMRC said that it would enhance the CEST tool before the IR35 reforms were rolled out to the private sector, and this update looks to have confirmed that commitment. The UK’s tax body reportedly consulted stakeholders to help guide the update, and rigorously tested against case law and settled cases.

Accurate input of data

It is understood that around 30 questions have been updated or included and that several industry bodies and reportedly more than 300 stakeholders were asked to use the new version and feed in comments. Until now CEST produced an answer in only 85% of cases.

HMRC has released an updated Check for Employment Status for Tax (CEST) service, used to find out whether a contractor or employer should be classed as employed or self-employed for tax purposes, and in-line with IR35 legislation.

On 6 April 2020, IR35 rules, which currently apply to the public sector, will also come into force in the private sector. The tool was originally created in March 2017 by the government to check employee statuses.

Criticisms had been levelled at the tool since, with many saying that it is not fit for purpose, often not delivering a definitive answer in cases where the employment status is more borderline or challenging.

HMRC said that it would enhance the CEST tool before the IR35 reforms were rolled out to the private sector, and this update looks to have confirmed that commitment. The UK’s tax body reportedly consulted stakeholders to help guide the update, and rigorously tested against case law and settled cases.

Accurate input of data

It is understood that around 30 questions have been updated or included and that several industry bodies and reportedly more than 300 stakeholders were asked to use the new version and feed in comments. Until now CEST produced an answer in only 85% of cases.

 

“The new tool has also been rigorously tested against case law and settled cases by officials and external experts. After answering a series of questions, the CEST tool will return a judgement on whether IR35 legislation applies or not. Questions cover worker’s duties, substitutes and helpers, working arrangements, financial risk, worker’s involvement and contracts (including if working for others).”

Accurate input of data is still necessary for the CEST tool to function as required, and for organisations that employ a large number of contractors, an internal audit of the current workforce is a good first step.

Under IR35 legislation, a contractor whose relationship with a company resembles an employee in all but name is required to have the same tax deducted from their payslip as a standard employee.

It must be remembered that CEST is the only tool that will produce a result that HMRC will stand by – provided the information input is accurate and the tool is used in accordance with guidance.