Check Employment Status for Tax: a contractor’s guide to CEST

Check Employment Status for Tax, or CEST as it’s more commonly known, is fairly controversial to say the least, writes tax lawyer Rebecca Seeley Harris of CEST Training.*

Built by HMRC, the online tool to test IR35 status receives a lot of criticism, but it has still been used 1.8 million times according to official stats from September 2021. Nearly 800,000 of those uses were by the worker -- the contractor. 

CEST 2.0

CEST was launched in March 2017 and then had its first major update in November 2019 with new questions added. 

In October 2023, CEST was moved on to a new government platform called Ocelot under the CEST 2.0 programme. This new platform will enable HMRC to amend the tool to include optional questions, such as asking in which sector the customer completing the tool is operating, and even probing their individual skills.

The customer insight HMRC receives from these questions will enable the tax department to understand customer usage of CEST across different sectors and identify whether customers are facing challenges with particular questions or sections of the tool. HMRC also added in October links in the tool to include extra guidance and showed the answers so far given at the end of each section.

No guarantees?

This article is a guide to CEST for those contractors who want to use it.

After all, the HMRC tool is free, and it is still the only employment status tool that HMRC will guarantee, if the input is correct and accurate and remains so.

That said, getting HMRC to stand by the results of CEST may be another matter. It is all down to whether you can evidence what you have inputted into the tool.

Is CEST designed by HMRC to trip up contractors?

I very often find that people using HMRC’s Check Employment Status for Tax have not understood the question properly, so they give an answer that could not be backed up by evidence.  My criticism of the tool would be that the CEST questions are written ambiguously or are difficult to interpret. You have to have quite an in-depth knowledge of employment status to understand exactly what answer HMRC is trying to elicit. One wonders whether by asking an ambiguous question, the Revenue has perhaps designed the tool to trip contractors up! So evidence is key here. You must be able to prove that you are answering the question correctly.

Why would you use CEST?

Thirty-nine per cent of workers use the tool. Those contractors who are working with a ‘small company,’ are still under the old IR35 regime. That means such contractors are still obliged to carry out their own IR35 status assessment. 

Just a reminder; the end-client company will be ‘small’ if it has any two of the following:

• a turnover of £10.2 million or less
• £5.1 million or less on its balance sheet
• 50 employees or less

In this case, the contractor could still use CEST as part of their own IR35 assessment. 

Status Disagreement Process

You can use CEST from HMRC to check a Status Determination Statement (SDS) or as part of the client-led Status Disagreement Process (SDP). The SDP is part of the off-payroll working rules where the client has to make the assessment. If you disagree with their SDS, you can use CEST to establish the status for yourself.

When you use CEST, make sure you keep a printout of the result and label it properly -- this is your evidence.

As a digital service for taxpayers, CEST was rigorously tested during development in conjunction with HMRC’s lawyers against live and settled cases; so it can be argued that it reflects employment status case law. In the cases listed by HMRC, the CEST outcome reflects HMRC’s view of the employment status determined by the facts of the individual case. 

There are now 36 cases listed by HMRC, following an update today (Mon Feb 5th 2024) from 24 cases. 

Six of the cases returned a different decision to the FTT which HMRC did not appeal. 

Out of the 36 cases, 19 cases were held to be self-employed or IR35 does not apply and 17 were held to be employed or IR35 applies.

There are three pending judgments which may mean that HMRC has to re-test the CEST tool -- PGMOL from the Supreme Court (expanded on below) being one of them.

Mutuality of obligations

One of the issues concerning CEST is Mutuality Of Obligations (MOO). 

HMRC’s very basic stance on MOO is that if you have a contract, you already have mutual obligations -- this seems to be the current thinking of the courts as well. 

Although, the Supreme Court judgment in PGMOL which we are all currently waiting for, will hopefully settle the matter.

For now though, it needs to be understood that just because mutuality of obligations are present, it does not mean that there is a contract of employment.

Using CEST

The HMRC tool assumes that there is a contract in place or that there will be. 

HMRC states that they will stand by all determinations given by the tool, as long as the information inputted remains accurate. 

The key here is ‘remains accurate.’ Very often an individual or client will only do one determination at the beginning of the contract. If that contract is longer than six months (as a ballpark), it should really be run again. Circumstances can change over time and you might start out as self-employed but, become “part and parcel” of the organisation some time later.

CEST advice: a final need-to-know before you use the HMRC tool

There has been a lot of debate about HMRC’s disclaimer and whether they will stand by the result of the CEST tool. My advice, as a result, would be to not rely on the CEST tool in isolation. In order to do a proper assessment of employment status, you need to have a robust process in place and the end result of that process would be to use the CEST tool to provide an SDS. In that case, the process will be which factors determine whether you are employed or self-employed -- and it would not then be down to the results of the CEST tool on its own.

*Editor’s Note: The author, Rebecca Seeley Harris, is offering a 50% discount to CUK readers until the end of Feb using code CUK50%Feb24 on CEST Training.