‘CEST Explained’ – where Control features in HMRC’s IR35 status tool

(Continued from Part One yesterday – all text by Rebecca Seeley Harris in CEST Explained)

Part 2

‘Control’ guidance for CEST users

This section is about whether the hirer has the right to control the work of the worker. The ability of the hirer to control, or have the right of control, of a worker can be a strong pointer towards employment.

Control is a necessary condition of a contract of employment. So, in order to satisfy the tests laid down in case law, there must be a sufficient degree of control over the worker for a contract of employment to exist.

Control used to be a determinative factor in the years of master and servant but today, it is on a sliding scale. The less control there is the stronger the pointer towards self-employment. Where the hirer has no right of control over the worker whatsoever, there will not be a contract of employment.

What HMRC says about Control

HMRC will maintain that it is the right of the engager to exert control that is important, not whether it is exercised or not. When the work in question involves a skilled individual with specialist knowledge, there may be little evidence of the hirer exercising control. The key question according to HMRC is whether the hirer ‘could’ exercise control because they have the right to do so in the contract.

HMRC also note that the right of control may not necessarily be explicit in the contract, it may be implied. It may also be worth noting the exercise of the right of the control may be delegated and that this does not necessarily negate the hirer’s own right of control.

Where there is a worker who is highly skilled or an expert in their particular field care must be taken because there are also experts who are employed and are not subject to control.

The element of Control

Control can be exerted in different ways. The four most important factors of control are considered to be:

• What

• Where

• When

• How

HMRC consider that when investigating a status case, all four elements of control as laid down by case law need to be investigated. It is generally considered, however, that control over ‘how’ a worker carries out the work is a more important factor than what, where and when. HMRC’s argument is that where the ‘how’ element is present, it is a strong pointer towards employment. The absence of any or little control over ‘how’ the work is done does not necessarily mean that the worker will be self-employed. This is because many employees are experts in their particular fields with particular skills and specialist knowledge and are not subject to such control.

Control in your contractor working arrangements

Further guidance on control over an expert can be found in HMRC ESM0528 - https://www.gov.uk/hmrcinternal-manuals/employment-status-manual/esm0528 HMRC Guidance

CEST addresses the issue of control by looking at four distinct areas:

• control over what a worker does

• control over how a worker carries out the work

• control over when a worker carries out the work

• control over where a worker carries out the work

CEST questions refer to ‘the task’, this means the role being contracted for and associated work that needs to be done under that contract.

Where to look to potentially find Control

What is important is the existence of a right of control over the four areas. That right need not be exercised in practice. For a worker to be employed, the hirer must have a right to exert a sufficient degree of control over the individual.

The first place to look to establish the existence of a right of control over the worker will be the written terms under which the hirer is contracting for the worker's services. Consideration of working practices may also assist you.

The right of control can include things like the hirer having manuals, guidance, policies or procedures which a worker is required to comply with. Does the hirer have a hierarchy in which managers plan, supervise and review work? Is the worker subject to this hierarchy? This could demonstrate control.

Editor’s Note: Text above exactly as published in Rebecca Seeley Harris’s ‘CEST Explained’ except for small additions like sub-headlines to aid readability in this excerpting, which is exclusive to ContractorUK.

Wednesday 7th Apr 2021
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Written by Rebecca Seeley Harris

Rebecca is a leading expert in ‘employment status’ and IR35 and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public sector, otherwise known as IR35, s.44 and any issues affecting the self-employed and personal service companies.
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