Overhaul CEST for its 189,000 'unable to determine' results, HMRC told

A year of CEST data totalling 975,416 uses generated 189,000 ‘unable to determine’ results, containing neither an inside nor an outside IR35 outcome, HMRC’s own figures reveal.

It means that an online tool which the taxman built to decide on IR35 is indecisive 19% of the time, equating to about one in five people still being stuck on status after using it.

'Too high'

OffPayroll.org says the tool has a capability “gap,” ReLegal Consulting says the indecisive rate is “too high”, and Andraste Accounting says it simply mirrors IR35’s complexity.

Qdos, a status advisory, believes that the HMRC figures are “damning” because new rules on IR35, for which usage of the tool is officially encouraged, are just 16 weeks away.

But the advisory says nobody should expect the figures to embarrass HMRC into rethinking its tool, which was updated last November – the first of the 12 months covering the figures.

'Doesn't need enhancing, needs an overhaul'

“Is there any chance of [the Revenue enhancing CEST] before IR35 reform on 6th April 2021? Not in my opinion,” said Qdos’ operations director Nicole Slowey.

“From its one-size-fits-all logic, to the fact that it isn’t aligned with IR35 case law, CEST is fundamentally flawed…[so it] doesn’t need enhancing, it needs an overhaul.”

An adviser on the April 2021 off-payroll rules to agencies and clients, Rebecca Seeley Harris, believes that despite the “partly warranted” criticism, CEST “has its uses.”

'Indeterminative rate needs to be 10% or less'

“[These new HMRC statistics show] CEST was heavily used back in January to March,” ReLegal's founder began.

“But I’m glad to see that the undetermined [rate] is only 19%. Yet that is still too high; it needs to be 10% or less really.”

Speaking last night, a former tax inspector Carolyn Walsh said that “lessons needed to be learned” from Friday’s HMRC update – ‘Check Employment Status for Tax (usage data).’


But the Andraste boss did not say if she believes that the lessons will be learned, only that the undetermined rate (19% according to the new stats, up from 15% at launch), smacked of the ‘tax regime’s complexity.’

Another contractor accountant James Poyser, at inniAccounts reflected: “The undetermined 19% still represents a gap -- which is best filled by using a third-party assessor.”

Yet according to the Revenue on Friday, CEST users with an ‘unable to determine’ result should consult the Revenue further, specifically employment status manuals 11000 and 0500.

Qdos CEO Seb Maley reflected: “It’s worrying enough that CEST has been used nearly one million times in the past year, but that it hasn’t been able to make up its mind a staggering 188,000 times is frightening.

“To make matters worse, people are then expected to work it out themselves by checking the complex employment status manual or get in touch with HMRC, whose own tool couldn’t help them in the first place.”

'Not confident in HMRC's assessment'

Online, contractors confirmed that ringing the tax authority about their IR35 status was an unlikely response to an ‘unable to determine’ result from CEST.

One of them, a Business Analyst said: “It’s just a good job that HMRC don’t have a history of losing in court, otherwise I wouldn’t have much confidence in their assessment if I called for advice. Oh wait.”

An HMRC spokesman said: CEST produces a determination in the vast majority of cases and HMRC stand behind every result it gives, provided the information is accurate and it is used in accordance with our guidance.

“To reach a conclusive result in a greater proportion of cases we would need to add in more complex questions, which would add difficulty for the majority of users. In more finely balanced cases, CEST is expected to provide an undetermined outcome and HMRC has provided detailed guidance and dedicated support to help customers make status decisions.”

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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.
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