HMRC updates CEST with 12 new IR35 cases

HMRC has updated the number of IR35 court cases that Check Employment Status for Tax (CEST) has been tested against.

The tax department’s tool to help assess IR35 status now factors in 36 settled cases, compared to 24 settled cases previously.

A few contractor status advisories told ContractorUK that they welcome the CEST update -- at least in principle.

'Makes CEST more capable'

Qdos, for example, says “anything that makes CEST more capable” of accurately determining contractor IR35 status must be a good thing.

Similarly, ReLegal Consulting said it backed HMRC bringing the tool “up-to-date with current case law.”

But ReLegal also said that despite the update on Jan 29, Kaye Adams’ (default) IR35 win disclosed on Jan 24, isn’t factored into the tool.

The omission of Atholl House Productions’ FTT win is confirmed in an HMRC document which lists the now 36 cases which CEST has been tested against.

'IR35 applies'

Separating each case into tool-result and court-result, Atholl is stated as “IR35 applies,” under both “CEST” and “Appeal Outcome.”

“CEST took the view that IR35 applied…[but the HMRC document wrongly says] the appeal found IR35 applies,” says Qdos’s Seb Maley.

“But, as we all know,…the final result [in Atholl was that IR35 didn’t apply]. So…the latest [CEST] updated case list isn’t even up-to-date.”

The update already being outdated may explain why HMRC chose not to inform taxpayers of the CEST case law additions.

In fact, although HMRC informed key stakeholders, an HMRC spokesperson ducked answering whether contractors, in particular, will be alerted.

'Inside IR35 blanket assessments are the norm'

But poo-pooing expert tips on how to use CEST, at least one PSC won’t care that a bid to make the tool smarter is underway.

The contractor believes there’s no point offering any advice on using the HMRC tool, as "inside IR35 blanket assessments are the norm".

“There are many businesses that use CEST including some of my clients,” corrected ReLegal Consulting’s boss Rebecca Seeley Harris.

“The point…is to help the 1.8million users of CEST to understand it a bit better, [and] 800,000 of [those CEST users] are the workers.”

'Big whoop'

A tax lawyer, Seeley Harris was citing HMRC’s latest figures, but it’s almost a fifth of CEST’s 36 cases which bother another IR35 expert.

“I think this CEST case law update is a case of ‘big whoop’” began the expert, Charlie Hemsworth, a director at Bauer & Cottrell (B&C).

“It’s positive HMRC is taking steps to improve CEST, but the fact that six out of the 36 cases resulted in different decisions points to issues.”

'Deeply flawed'

Qdos’s Mr Maley, the IR35 contract review firm’s CEO, agrees.

“I struggle to see how much of a difference – if any – these updated [IR35] cases will do to improve…[HMRC’s] deeply flawed IR35 tool.

“Three cases; Larkstar Data, Novasoft and Canal Street Productions, show CEST has taken the view IR35 applies, but the tribunal didn’t.

“Plus, there are three cases [via CEST with] 'undetermined' results. But [all three] were decided at a tribunal.

“So, whichever way you look at it, this updated case-list hardly instils confidence.”

'You should not rely solely on CEST's output'

Lack of confidence in CEST may be why advisers who specialises in off-payroll working say that relying solely on the HMRC tool, is risky.

Seeley Harris is one such adviser.

“You should not rely solely on the output of CEST – or any IR35 status testing tool for that matter -- to determine employment status for IR35, off-payroll working or self-employment,” the tax lawyer says.

“I don’t believe it constitutes HMRC’s ‘reasonable care’ to use any tool in isolation. It’s far better to understand how to establish whether someone is employed or self-employed yourself, not by using a tool.”

'Better CEST'

The HMRC spokesperson only really commented to confirm that the number of cases which CEST tests against has increased to 36.

But seeming to chime with ReLegal’s belief that prudent contractors will avoid tool-dependency, the Revenue is currently advising to use CEST to merely assist with determinations.  

Despite the tool now being tested against an additional 12 cases, Bauer & Cottrell says the real, tangible help remains elusive, as does clarity from the courts on Mutuality.

B&C’s Ms Hemsworth said in a statement: “We can only pin our hopes for a better CEST on phase two of the rollout, which will hopefully bring with it updated questions/logic - pending the case everyone is waiting for, PGMOL.”

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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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