The Revenue has unveiled a revamped version of its online tool for making employment status determinations. The latest version of the Revenue’s Check Employment Status for Tax tool – ‘CEST 2.0’ – is accessible via the same URL and is HMRC’s free tool for contractors and end users to use to test the IR35 status of workers. We’ll speak to a tax specialist about the tool and the improvements to it.
Whether businesses choose to use the tool is entirely up to them but, if they do, the Revenue’s position remains unchanged. The Revenue has made clear that a status determination using CEST can be relied upon provided the information entered is accurate, and the results are not “achieved through contrived arrangements”. As we’ll hear shortly, we do advise clients to use it.
Contractor UK reports on this with IR35 expert Rebecca Seeley Harris explaining how the big difference with CEST 2.0 is the technology underpinning it. She says it’s a two-phase roll out and this phase is concerned with the move to a new platform which is more flexible making it quicker and easier to amend CEST, if required. She says the thinking appears to be that when new case law emerges the Revenue can quickly tweak the tool to factor it in for future results. Phase two will involve a review of the questions posed by the tool which try to get to grips with the issues such as mutuality of obligation and right of substitution which have always been crucial determining factors when it comes to status determination and which the courts have wrestled with for decades.
So let’s hear from a tax specialist on what this news means. Earlier Penny Simmons joined me by video link to discuss the tool and whether the improvements will help users:
Penny Simmons: “My initial thoughts are it sounds more exciting than it is. Yes, the Revenue has released CEST 2.0 but CEST 2.0 is in two phases, phase one and phase two, and we're only at phase one. Phase one is putting CEST onto a new platform, if you like, which is supposed to be more user-friendly, has embedded links to the Revenue’s guidance, to different aspects of the Revenue’s guidance on employment status for tax purposes and allows you to review some of your answers. So we're very much in phase one. Nothing substantial, has changed, nothing is significant has changed in terms of how CEST makes those determinations - so, how the tool makes the determinations to establish whether somebody is employed for tax purposes or not. So, as I say, it's not as exciting as it might first seem.”
Joe Glavina: “Last time we spoke about this you said that businesses should use this tool to help them make their status determinations. Is that still the advice?”
Penny Simmons: “Absolutely, Joe, our advice remains the same. CEST is the only tool that the Revenue has said that businesses can rely on if the information that they put into that tool is correct. So, when making a CEST determination, if the information that you've put into the tool to make that determination is true and accurate the Revenue has said on a number of occasions that businesses can rely on those determinations. Now, obviously, it remains very important, and it remains the case, that businesses make sure that they have accurate data and the correct information when making those determinations and using the CEST tool.”
Joe Glavina: “Of course, many businesses hire a lot of contractors - some have hundreds of them on their books all doing very similar work. So, can the business save time by doing group determinations?”
Penny Simmons; “Joe, I think we've talked about this in the past and, again, probably what I've said in the past hasn't really changed. Are group determinations theoretically possible? Yes, there is no outright ban on group determinations but the reality is, when you read Revenue guidance, that there'll be very limited circumstances where group determinations will be okay and you'll be able to say that by making a group determination a business has taken reasonable care when making status determinations. The reason for that is that group determinations are only really okay where contractors have exactly the same terms and the reality of their engagement is exactly the same. So you can't make a group determination for a category of contractors that have, if you'd like, the same title, you know, some kind of consultant, or broadly similar terms but actually the specifics of their engagement differ. So, they might be on the same contract but the reality of what they do on a day-to-day basis differs. You can't make a group determination for them or I certainly wouldn't be recommending group determinations for them if a business wants to be able to say that they've taken reasonable care in making those determinations. Where group determinations may work, and a business may still be able to say that it's taken reasonable care, are where workers are on the same terms and they are working in the same way. So really, there would be no difference from determination to determination between those workers.”
Joe Glavina: “We know the previous version of the CEST tool was not able to give a status determination in 15% of cases and, apparently, with version 2.0 that figure has jumped to 21%. What do clients do if they fall within that percentage bracket?”
Penny Simmons: “That's a good question, Joe. I've read that statistic as well. I don't have any of my own evidence to back it up. We do work regularly on cases where the determinations are unable to determine and we very much look at those cases as being the grey cases where it is uncertain and actually in most of those cases we would probably be able to ascertain before making a CEST determination that the likely outcome was probably going to be ‘unable to determine’. We would look at the all the factors of the case, which is what's recommended when making a determination as to whether somebody is employed for tax purposes and we would consider the likelihood of what side of the line they're going to fall on. So, what do I mean by that? Whether they're more than likely to be considered to be employed for tax purposes, or more than likely to be considered self-employed for tax purposes. But to be honest with you, Joe, what we would usually recommend is that businesses use CEST and they also use an element of judgement as well because businesses need to look at all the facts of the case. So use CEST and also use an element of judgement when looking at contractors to work out whether they would be likely to be employed for tax purposes or self-employed for tax purposes. It’s not always easy.”
That article reviewing CEST 2.0 is by Contractor UK. We’ve put a link to it in the transcript of this programme.
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