HMRC finally updates CEST, making almost 40 changes
Long-awaited changes to Check Employment Status for Tax (CEST) have finally been made by HMRC, although contractors and their advisers might be forgiven for failing to realise.
Instead of announcing them on its homepage, as an IR35 reviewer says would be “proportionate”, HMRC only seems to acknowledge the changes in the tool’s update notes.
Visible once a drop-down menu is clicked, all HMRC says is that CEST “has been updated so if you do not know the worker, the tool will not ask questions about their circumstances.”
'Reliable status determination'
Tom Wallace, head of tax at dispute advisory WTT Consulting is one of the advisers who yesterday sounded underwhelmed at what appeared to be the small scale of the changes.
Formerly of the Revenue, Mr Wallace said: “[I’m] not really sure that [it] is much of an update in terms of getting CEST to give a reliable status determination.”
But appearances can be deceptive. In fact, HMRC has actually made 39 changes to CEST (between November 22nd and 25th), covering Financial Risk, Worker Contracts and Personal Service, among other areas.
'Many parts updated'
“Based on just a quick play with it, it’s clear HMRC have updated many parts of the tool,” says IR35 expert Kate Cottrell. “The links to new guidance, see ‘Updates,’ show them best.”
Yet CEST’s numerous updates could have been flagged up much better, or more prominently, according to a status review specialist speaking on condition of anonymity.
“The taxman should be declaring his CEST tweaks on HMRC’s homepage,” the reviewer says. “It’s so important to so many people. It’s disappointing the notification isn’t proportionate.”
Even the one CEST change cited in its update notes (that if the user doesn’t know the worker, the tool no longer needs their circumstances inputted), deserves stronger highlighting.
“The previous CEST version was confusing in that it asked questions that people weren’t always able to answer,” begins Julia Kermode of the Freelancer & Contractor Services Association (FCSA).
“For example, a client or recruiter might be using it for an indicative assessment, prior to resourcing a PSC to undertake the role.
“In that situation, they wouldn’t know the answers to CEST’s questions about the worker’s circumstances, [such as if] they have other clients. So this latest change aims to clarify things and allows the tool to be used in situations where the exact PSC is unknown.”
'The substantive update we've been waiting for'
As omitting the ‘circumstances’ question accounts for just one of the nearly 40 CEST updates, HMRC’s package of changes to the tool do equate to “the substantive update that we’ve been waiting for,” added Ms Kermode, the FCSA’s chief executive.
The others include Substitution no longer immediately returning ‘outside/inside’ from singular ‘Yes/No’ inputs; multiple ‘No’ answers but with varying reasons, and four additional supplementary questions related to ‘Part & Parcel.’
CEST’s initial queries have changed too, as has the conclusion of the test, which now sees users presented with a “Disclaimer” which they must agree to before getting to see their result.
HMRC still insists (on another updated tool-guidance page ‘Results of CEST’) that it “does not keep a permanent record of any entries”, however. And it says it does not store individual results.
'Confuses the hell out of me'
But yesterday, one PSC struggled to get past the very first new question – “What do you want to find out” – ‘test if IR35 applies, or test if work is deemed employment or self-employment?’
“This first page already confuses the hell out of me,” the PSC said. “Don't these two questions basically lead to the same thing? [Either way] there are lots more questions now [to answer]”.
Asked for their take on the updated CEST, the IR35 reviewer said IT contractors should find a seemingly new range of examples (in the HMRC guidance) more helpful than the previous working arrangement examples -- one of which featured airline pilots.
'Stacey, an IT programmer'
Under ‘Worker Contracts’ for example, and related to the CEST Question of ‘Any similar work in the last 12 months?’ there is “Stacey, an IT programmer.”
A mechanical engineer, a web designer and another IT programmer also feature in HMRC’s updated (internal) Employment Status Manual.
Some of the other worker-types featured in the ‘EXAMPLE’ sections of the HMRC guidance seem ironic.
For example, there is a ‘sports pundit’ (a nod perhaps to the Hawksbee IR35 case), a ‘TV presenter’ (potentially in light of the Adams IR35 case) and a ‘news presenter’ (potentially in light of the Fospero IR35 case).
At the FCSA, Ms Kermode reflected: “The new guidance aims to give more background regarding the factors considered by the tool and explain the rationale to non-experts.
“The idea behind the guidance is positive, as it should enable more accurate determinations to be generated for those using the tool. However it is of course difficult to clearly explain something that is, in fact, nuanced.”
On LinkedIn yesterday, a freelance programmer suggested that it wasn’t just difficult for HMRC or CEST to explain; rather it's difficult for the tool to compute such nuances.
“I just did a run-through with what I would consider outside [IR35] -- and it came [back as] inside,” he wrote.
“Being able to pick where you work, how you work [were the outside factors I inputted]. The one [answer] that I think caught it [as] ‘inside’ was the question asking if the client didn't like the work [whether you as the PSC] would you have to rectify it unpaid.”
'No, No, or Not relevant'
On the new CEST tool, the latter question is similar to the question ‘Does your client have the right to decide how the work is done?’ because more than one ‘No’ answer is now provided.
For example, in answer to the ‘how the work is done’ query, PSC users choose between “No, you solely decide,” “No, you and your client agree together” or thirdly, “Not relevant, it is highly skilled work.”
Signalling that this greater choice looks like an improvement (even though many bonafide contractors would likely be torn between the first and third answer) , the FCSA’s Ms Kermode believes it might not just be users who the updated tool is designed to help out.
“There have been a few recent cases where HMRC has not stood by the results generated from the tool, where presumably they have disagreed with the information input.
“It seems likely that the new guidance along with the updated tool has been issued to prevent further future embarrassment to HMRC if they continue to not stand by the results generated,” she said.
An HMRC spokesman said: “We have worked with more than 300 stakeholders to make CEST clearer, reduce user error and consider more detailed information.
“CEST was rigorously tested against case law and settled cases by officials and external experts. It is accurate and HMRC will stand by the results, provided the information input is accurate and it is used in accordance with our guidance.”
The Revenue’s November 2019 changes to CEST are at odds with its assertion (in answer to criticisms of the tool dating back to March 2017) that CEST is ‘working well’ and so doesn’t need to be changed.
Since the department's assertion, made in July 2018 – so 16 months after the tool was first handed to hirers to make decisions under the public sector’s IR35 rules of April 2017, criticism of the tool has been widespread. In October and November 2018, with the criticism not relenting, HMRC eventually committed to make CEST “enhancements.”