The taxman just made the divide between status under tax and status under employment law crystal clear

It probably wasn’t flagged up to contractor taxpayers and the gist of it doesn’t even feature on CEST’s update ‘history’ for us all to see. 

Nonetheless, a new HMRC document stating that the official IR35-testing tool has now been tested against 36 cases does carry an important and clear message from the taxman, writes former tax inspector Carolyn Walsh.

A guide, an indication...

And that message is this -- that the department’s CEST tool for end-clients, agencies, and contractors to use when confronted with IR35 or the OPW rules is only a guide. 

I’d broadly agree that as an indication of HMRC’s stance on employment status, it’s very useful.  

It will continue to be very useful even if certain employment law commentators will continue to dispute it, almost no matter how good it becomes or how many cases are fed into it. Be aware, a good chunk of those nay-sayers may have their own IR35 tool which they’re trying to make you use, and at a cost to you the contractor! 

A nod is all the Revenue needs

Another important part of this message from HMRC is that the Check Employment Status for Tax tool does exactly what it says on the tin - i.e. it checks a contractor’s employment status for tax purposes. We can therefore deduce that HMRC uses the proximity of results to employment law only as a nod to the tool’s effectiveness.  

This, I’d argue, is the perennial problem in a nutshell.  

Employment status for tax is different to employment status under employment law.

And although employment law does take precedence, HMRC will decide to accept tribunal results - or it won’t, meaning HMRC has its own interpretations of employment status.

Annoyingly for some, the tax authority really doesn't have to change that stance -- unless a major development in an IR35 case takes place. 

Crystal clear

So, the divide between status under tax and stats under employment law could not be made any clearer than this CEST case law statement and update. In fact, it’s now crystal!

On the plus side? Contractors have been able to obtain HMRC opinion on the status of their contracts before the event for a long time now, and can either risk going as far as a tribunal to prove HMRC wrong, or change their working practise to avoid any risk occurring. 

So perhaps there’s little to be gained from complaining about the CEST tool, particularly when there’s something of great importance to be learned - and that’s how HMRC views contracts. When there’s a warning on the tin - don’t ignore it!

Profile picture for user Carolyn Walsh

Written by Carolyn Walsh

With over twenty years’ experience in the sector, Carolyn assists freelancers, contractors, agency and umbrella company workers, interpreting tax legislation and guidance with a no-nonsense approach.
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