Government’s tool for assessing IR35 status and employment status is falling dramatically short
The latest usage data
for HMRC’s Check Employment Status for Tax (CEST) tool has cast a light on one of its many flaws, revealing that the technology delivered 410,083 indeterminate results between November 2019 and August 2021.
This marks a 23,531 increase when measured against previous government statistics and serves as an important reminder to businesses not to rely on CEST when assessing the IR35 status or employment status of workers.
Businesses risk IR35 compliance with CEST
Following the introduction of IR35 reform in the public and private sectors, it is now the responsibility of all organisations (other than those qualifying as a small company) to assess the IR35 status of contractors they engage.
CEST is the government’s technology designed to help determine IR35 status. However, that it wasn’t able to deliver an answer 21% (233,631) of the 1,125,408 times it was called into action in this 20 month period is a major cause for concern.
This tool’s indecision has left hundreds of thousands of contractors and businesses in limbo, with regards to IR35 compliance.
What’s more, when CEST cannot deliver an answer, users – many of whom are not experienced in IR35 – are directed to HMRC guidance to then make up their own mind. Given the complexity of the IR35 rules, this poses another risk to compliance.
CEST usage data is at odds with Qdos’ own
The fact that only 49% (558,346) of the engagements assessed by the tool were deemed outside IR35 is also a worry. This figure is at odds with the data obtained from the Qdos Status Review
facility which, following a rigorous IR35 status review, has judged that 87% of the 32,000+ contractors it has assessed on behalf of nearly 3000 businesses belong outside IR35.
The tool’s failings extend beyond IR35
CEST is also used by businesses to assess the employment status
of sole traders, as opposed to limited company contractors. As can be the case with IR35, businesses that engage workers as self-employed when their true status is employed are liable for missing employment taxes.
The contributions of CEST in this instance are just as concerning. In the same period, 712,080 engagements were run through the tool, which delivered 17,645 (20%) indeterminate answers. The remaining 55% (392,706) were deemed employed and 25% were classed as self-employed engagements.
Indecision is just one of CEST’s downfalls
Combined, the number of indeterminate results provided by CEST – whether for IR35 status or employment status – total 410,083. But CEST’s inability to deliver an answer roughly one in five times isn’t the tool’s only problem.
Since its release in the lead up to public sector IR35 reform in 2017, CEST has often been criticised for failing to take into account crucial aspects of case law upon which status can hinge.
For example, CEST works off the presumption that Mutuality of Obligation (MOO) exists in all engagements, but numerous recent tax tribunals have proven this not to be true.
And when it has been scrutinised at the tribunal stage, decisions provided by CEST have been dismissed more than once.
Taking the most recent usage data into account, businesses are advised not to rely on CEST when assessing IR35 status or employment status. The tool is not mandatory and poses a threat to compliance.
To find out more about the Qdos Status Review facility, or to discuss your options with an industry expert, please email [email protected]
or call 0116 478 3390