HM Revenue and Customs (HMRC) have at last accepted the flaws with its highly criticised Check Employment Status Tax (CEST) tool. This has been announced in the latest IR35 Forum minutes released the previous week.
CEST has received a lot of criticism from professionals since it did not account for the Mutuality of Obligation (MOO). As has been proved by the outcome of various tribunal cases related to IR35, MOO is a critical factor that determines employment status. But this was ignored by the CEST tool.
A Step in the Right Direction
HMRC has also announced its plan to offer additional guidance related to the completion of CEST. Also, the tax authority will create a note relating to MOO. It has stated that it will consider ways to improve the employment assessment tool to promote good practice.
The tax agency had also promised that it will work with different stakeholders in order to better address concerns raised regarding the IR35 rules.
One of the chief shortcomings of the CEST tool was the assumption that MOO is present in all contractual obligations, which is not the case in every contract. The flawed assumption had led to many contractors being erroneously judged inside IR35.
IR35 Forum members have repeatedly raised concerns regarding the flaws of the CEST tool. The members have pointed out that the tool does not correctly assess contractors who engage in different types of work. Moreover, the CEST tool is not suitable for the large private sector. Members have requested to make changes to the tool in light of the flaws proved in different litigations since March 2017.
Apart from fixing the CEST tool, HMRC has also stated that it will create a redraft to explain applicability of MOO in certain situations such as when the contractor has been engaged in a series of short engagements.
Moreover, HMRC has announced that it will address non-compliance with IR35 among umbrella and recruitment agencies. This is a serious issue that the tax agency think is deliberate instead of a result of a lack of knowledge. The tax agency had rejected the proposal to create best practice standards since it thinks that they would most likely be ignored. However, it has acknowledged that there need to be changed in the employment status tool to make it simple and straightforward that covers all eventualities.
Although the contracting professionals have welcomed HMRC’s move towards changing flaws of CEST tool, they also criticised the tax agency’s failure to consider expert’s advice regarding off-payroll working rules.