CEST (Check Employment Status for Tax) is a tool created by HMRC to help clients determine whether any contractors they engage fall inside or outside the IR35 rules.
What does CEST do?
CEST uses a series of multiple-choice questions to evaluate a contractor’s employment status based on factors such as the level of control they have over their work, and relationship with the client.
The tool generates a summary of the contractor’s responses and provides an explanation of the determination.
This determination can then be used by the client to produce a Status Determination Statement for the worker, which shows whether the engagement is inside or outside of the IR35 rules.
According to HMRC, the tool is used mainly by clients (59%) and workers (39%), with agencies making up the final 2%.
History of CEST
CEST was originally launched in March 2017 to help organisations cope with the new ‘Off Payroll’ rules which came into play in April of that year.
From April 2017, public sector clients became responsible for determining the IR35 status of contractors. The tool was created to help organisations make these determinations.
CEST was updated in November 2019 in response to widespread criticism of its usability.
The updated version includes additional questions that rely on previous answers and can be completed by the worker, the end client, or the agency paying the worker.
The Off Payroll rules were extended to most private sector clients in April 2021.
Limitations of CEST
Despite these changes, many users have expressed their dissatisfaction with the CEST tool. Critics claim that it is overly complex and time-consuming to complete, while others argue that its accuracy can vary depending on who fills it out.
Here are some of the most frequently cited limitations:
The question format doesn’t reflect the real world
The yes/no format of CEST means that it is unable to provide a rounded assessment of a contractor’s employment status in the real world. It cannot take into account the nuances that exist in a contractor’s working arrangements.
Then there is the added complication that the tool can be used by the client, recruitment agency or contractor. In tests, different results will often be generated according to the type of user who uses the tool.
CEST can’t provide a decision 20% of the time
According to the most recent usage data, CEST only provides a determination in 80% of cases. In other words, it cannot decide if an engagement is one of ’employment’ or ‘self employment’ 20% of the time.
CEST ignores the Mutuality of Obligation as an IR35 factor.
MOO has always been one of the most important status factors, alongside substitution and control, and has regularly been considered in employment tribunals.
However, HMRC states that it considers MOO to exist in all cases where there is an agreement to supply and provide work, and as a result CEST barely includes it as a status factor.
Will HMRC stand behind the decisions generated by CEST?
HMRC states that it will “stand by all determinations given by the tool, as long as the information you give remains accurate.”
However, some clients are reluctant to rely on a tool which has been so frequently criticised by employment status experts.
In tribunal cases, HMRC has often questioned the accuracy of answers input into CEST. The tax authority can also question whether ‘reasonable care’ was taken by clients who have used to tool to determine a worker’s status.
This problem is nicely summed up by Qdos here:
Ultimately, HMRC’s promise to ‘stand by’ the result that CEST gives will only happen once they have satisfied themselves that the information used to generate it was accurate. Given some of the key questions are subjective, this gives HMRC plenty of room to challenge the accuracy of the tool’s use.
As a result, many organisations now use third-party employment status software tools.
Some alternatives to CEST
There are many third party alternatives to CEST. These companies typically offer a suite of IR35-related services, from contract reviews to insurance. Some of the key players include:
For ultimate peace of mind and defence in the event of an IR35 investigation, take out Qdos’ award-winning IR35 insurance – from just £99 per year. This covers up to £50,000 of professional representation and potential tax liabilities up to your chosen level of indemnity.