HMRC updates "CEST" tool for determining employment status

HMRC has recently updated its online “Check Employment Status for Tax” tool (“CEST”), and has provided some revised guidance on its use.

The intention is that businesses can use the tool to help them determine whether a contract with a worker is one of employment or self-employment.  This is also a question that businesses will ask where they engage a worker through a personal service company, and need to determine (from April 2020) whether the engagement is subject to IR35 and therefore treated for tax purposes as though it were an employment.  

Determining employment status is often a difficult task.  Although certain contractual features are almost always found where a contract is one of employment, in all but the most straightforward cases the determination requires a broader “picture painting” that considers all the facts of the specific case.  The careful weighing of all the various factors is discussed in extensive case law, which can sometimes seem contradictory.  In some cases where the facts are very finely balanced, it’s entirely possible that two experts might reach the opposite conclusion.  So developing a tool to automate this process is inevitably difficult, and it is impossible that any automated tool could ever give an unequivocal and correct answer in all cases.  

The CEST tool – at least in its former incarnation – has certainly been subject to much criticism from tax advisers.  While it appears to have increased in sophistication, it inevitably cannot take account of all the factors that a tax adviser or a court would consider when “picture painting”.  It remains to be seen whether the new updated tool will be more useful than previously in complex cases.  

 The use of CEST is not mandatory.  However, many businesses will want to use the tool as part of a triage process – to identify clear cases of employment or self-employment without the cost of taking specific advice.  In those cases, businesses should carefully review the new HMRC guidance, which offers a reasonable summary of the factors to consider when answering each CEST question.  Having obtained a determination from CEST, businesses should print out and retain the results – marked so it is clear which worker has been assessed – and should be able to rely on the answer in any subsequent dealings with HMRC, provided that the facts were correctly put into the tool originally and that nothing material has changed since the CEST tool was used.  

CEST will inevitably often give an inconclusive answer to complex facts, and in many cases it may give a result that is different than the business expected.  In those cases it is strongly advisable to take professional advice.  At Jurit we collectively have many years’ experience of advising on employment status, IR35, and all other aspects of tax anti-avoidance rules relating to the engagement of workers.

The new CEST tool can be accessed at: https://www.gov.uk/guidance/check-employment-status-for-tax

The revised guidance begins at: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm11000