Growing doubts engulf HMRC’s unscheduled CEST 'enhancement'

The Treasury leaving out the widely discredited Check Employment Status for Tax tool from draft IR35 legislation has, paradoxically, added to the disquiet, not detracted from it.

In fact, despite omitting CEST from Finance Bill 2019-20, meaning there will be no statutory obligation to use it, questions about the tool are now being posed in the House of Commons.

Crispin Blunt MP has asked the chancellor “which elements” of CEST were tested; “how they were tested” and, sounding interested in personal accountability, “who tested them.”

'Contractors themselves'

Last week, HMRC said the tool was developed with public authorities, employment agencies, central government procurement specialists, tax specialists and “contractors themselves.”

The Revenue also used the government’s official response to the consultation on the draft IR35 legislation to say it has run “over 25 CEST user research sessions.”

But the information is not new, Nigel Morris of tax and business advisory MacIntyre Hudson has hinted or at least, it does not add anything to the contractor industry’s understanding.

'No confidence'

“[CEST] will be an important tool for those involved with IR35, yet no update was provided [last Thursday]” , he has said, adding:

“The jury is still out on the review of the CEST, which has been given a vote of 'no confidence' by the profession.”

Acknowledging this albeit not very loudly (buried in page 17 of the consultation response), HMRC conceded: “Many [consultation respondents] expressed the view that the current tool did not accurately reflect current case law.

“[And the respondents said it] used language which was overly complex, and was ambiguous about how it reached its decisions.”

'Unlikely to reach the right decision'

The case law additions appear to represent the biggest task facing the CEST development team. Sounding breathless in simply trying to summarise those, the CIOT said:

“Until CEST takes proper account of mutuality of obligation, multiple engagements, contractual benefits - such as holiday pay, maternity/paternity pay - and whether someone is in business on their own account, it is unlikely it will be able to reach the right decision on status.”

A chairman at the Chartered Institute of Taxation (CIOT), Colin Ben-Nathan, added:

“And this is key because otherwise the lack of confidence in CEST will increase disputes between businesses and contractors and so lead to significant time and effort having to be expended by businesses, contractors, HMRC and the courts in trying to resolve them.”

But the institute’s other big CEST concern – flagged up before the publication of the draft IR35 legislation  – is timing.

“HMRC is looking to enhance CEST to ensure it works more effectively,” Mr Ben-Nathan said, citing HMRC’s commitments in the consultation response, “[but] it is only undertaking to roll out the new service before the new off-payroll working rules are introduced next April.”

'Organisations already preparing'

His concern is that engagers are looking to assess their contractor workforce now, or at least before the start date, as they have been advised, so improving CEST for ‘before April’ sounds too late.

Showing awareness of the issue, the Revenue acknowledged in the consultation response that “organisations are already preparing for [the] April 2020 [IR35 reforms].”

Yet all it then promised was to “offer continued guidance and support” – specifically in the shape of an education “package” which sounds imminent; “summer 2019,” HMRC said.

In the meantime, a growing number of service providers are offering practical guidance to contractors because “we simply cannot rely on HMRC’s view of IR35 and hence the CEST tool,” warns status advisory Chartergates.

'Question marks'

One of those firms assessing the practicalities of limited company contracting post-April 2020, or even in the run-up as engagers introduce policies to pre-empt it, is Nixon Williams.

“There are still question marks hanging over the reliability of government's CEST tool”, confirms the accountancy firm’s chief commercial officer Mark Beal-Preston.

“Can [HMRC] really make the necessary changes to provide accurate assessments in line with case law, as well as delivering planned education on how to prepare businesses in time?”

'In the run-up to and after'

The question has been oft-asked, even before CEST usage was not enshrined last week, but tax body the ATT believes the Revenue’s promised “enhancements” will be the difference between CEST succeeding and failing.

“Key to the success of these reforms will be the promised improvement to HMRC’s CEST, as well as the level of practical HMRC support available to affected businesses both in the run up to, and after, April 2020,” the body said.

Whether a diagnostic tool can ever be built to cover all PSCs in every conceivable working practice using IR35 status factors was long ago admitted by HMT to be an impossibility.

Despite this admission (“if we can build [the tool we] want to it will cover a majority and that is the best we can hope for”),  HMRC now says it will hone CEST so it works well for “all sectors.”


A bit of realism is perhaps needed, suggests Robert Salter, employment tax specialist at Blick Rothenberg. “One needs to understand that the CEST tool is an ‘imperfect’ way of assessing whether someone is genuinely an employee or self-employed.”

He added: “Even HMRC accepts that approximately 15% of all cases handled by CEST need to be considered in more depth.”

But due to the newly added complexity of the off-payroll framework, the tool itself will need to have more depth, yet it’s an addition that IR35 expert Kate Cottrell isn’t optimistic that HMRC can achieve.


The former tax inspector who now co-runs IR35 contract review firm Bauer & Cottrell said: “CEST isn’t fit for purpose, and exactly when are they planning to roll out [the promised enhancements]?

“In its current form, the tool certainly will not demonstrate that ‘reasonable care’ has been taken and it would probably be useless with regard to the new client-led dispute resolution process. I’m not holding my breath on a new version that works.”

Profile picture for user Simon Moore

Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
Printer Friendly, PDF & Email

Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required