The Treasury’s decision to remove the highly-controversial CEST (Check Employment Status for Tax) tool out of the draft IR35 legislation did not bring the expected reactions.
As the Finance Bill 2019-2020 omits CEST, making it clear that it is not mandatory to use it, questions are being raised on it in the House of Commons
Crispin Blunt MP inquired the chancellor of the tool’s “elements” that went through testing and what metrics were used to test them. Additionally, he also asked about those who tested it.
Recently, the HMRC announced that the tool was being updated with cooperation from the tax specialists, central government procurement specialists, employment agencies, and contractors as well.
Similar to the official response by the government, on the draft IR35 legislation, the Revenue also opined that it has run “over 25 CEST user research sessions.”
However, the information is nothing out of the ordinary. MacIntyre Hudson’s Nigel Morris suggested that it does not bring anything new to the table in the contractor industry. He explained that CEST is going to be a crucial tool for those that have to deal with IR35, however, there was no update regarding it.
In the consultation response’s page 17, HMRC slipped that CEST did not create accurate results with respect to the current regulations, a view that many consultation respondents shared with it. According to them, the tool was ambiguous on processing decisions and its language was also quite difficult to understand.
The CEST development team faces its biggest challenge in the form of the case law additions. The CIOT said:
“Until CEST takes proper account of mutuality of obligation, multiple engagements, contractual benefits – such as holiday pay, maternity/paternity pay – and whether someone is in business on their own account, it is unlikely it will be able to reach the right decision on status.”
Meanwhile, Colin Ben-Nathan, who chairs the CIOT, explained that this is important or else disputes between contractors and businesses will continue to increase, due to the lack of trust in the CEST. Consequently, plenty of efforts and time will be spent by the HMRC, contractors, businesses, and the courts to address them.
The CIOT is also worried about another major concern as well. Mr. Ben-Nathan explained that HMRC is trying to improve CEST to make sure that it works correctly, referencing commitments by the HMRC in the consultation response. However, it is only attempting to release the new service prior to the next April’s off-payroll rules.