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  • February 17, 2021
  • Gareth Morris

IR35: CEST update


One month before Christmas, and it seems all those preparing for Off Payroll Reform have been given an early gift – CEST has been re-published. Over the past few months we’ve been seeing, from the accounts of public bodies being published, evidence of HMRC ‘correcting’ status decisions reached via CEST. It cost NHS Digital over £4 million! As these bodies all used CEST to reach the original determination, we’ve been keenly anticipating the update to see what radical changes have been made.

So what was included in the CEST update?

Having read the revised guidance and ran some scenarios through the now updated infamous tool, I’m afraid I can’t see a lot to get excited about. The arguments against CEST are numerous and oft-quoted, so I considered these under the new guidance.

The tool is still a multiple choice, algorithmic approach, and whilst there are more questions than the original, it’s still a fairly black and white method. We all know that the difference in control over working arrangements can be varied and nuanced, but there are only approximately three possibilities for each question around this, which forces the user to take a worst-case approach.

Of the five scenarios I presented, three still came out indeterminate. Originally HMRC said at least 15% of contracts would not be able to be determined, but it’s unclear if this figure will change with the new tool.

What does this all mean?

Whether you can reach an outside IR35 determination seems to still hang largely on substitution, despite that not having the same prominence throughout case law. It is certainly possible to get an outside status, but with HMRC declaring such a determination irrelevant via tribunal proceedings recently, and quietly forcing public sector organisations to overturn their CEST-driven outside status determinations, I’m not sure how much of an assurance that will be.

It is positive that there is more comprehensive guidance available and businesses will be grateful for this, at least. However, it is concerning that throughout, HMRC emphasises the need to take an ‘in the round’ view, without reverting to any sort of checklist type approach, when their own tool seems to rely on this.

If I thought using CEST would provide an accurate status with a reasonable amount of reassurance, I’d shout it from the rooftops. The reason I don’t is because I genuinely believe if a business uses this tool, they’ll get a potentially inaccurate status determination their contractors won’t trust, which isn’t reliable in the event of enquiry. Plus, they’ll be on their own in defending it if it comes to it – not a position I’d recommend any business takes.

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The majority of clients that I have spoken to over the past few years about IR35 are certainly capable of engaging contractors on a genuinely outside IR35 basis, and by using our assessment approach, backed by insurance, they can discharge their legal obligations without fear.

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