CEST and the importance of intellectual property rights versus mutuality of obligation

04th November 2020
Written by Qdos Contractor

According to CEST: When it comes to determining IR35 status, Mutuality of Obligation and the ability to retain intellectual property rights should be weighted equally

CEST and its many updates

HMRC’s CEST has always been contentious in terms of determining IR35 status. This tends to be due to ambiguity in some of the questions, over-reliance on the right of substitution, and the absence of questions on mutuality of obligation. Additionally, the responses to HMRC’s questions are restricted as you are only able to select the most appropriate option provided. As such, this may only produce a limited view of the engagement, or it could result in the wrong answer altogether due to the fact that there is no ability to add further context around the responses.

The tool was updated in late 2019, following severe criticism over CEST’s ability to provide a reliable opinion on a worker’s IR35 status.  When the tool was first released, it would determine the IR35 status of the worker by answering only a few questions. For example, if a worker had indicated that they can provide a substitute which the end client would not be able to reject, the likelihood is that an outside of IR35 option would be provided.

Now it seems that even where there does appear to be a genuine right of substitution, further questions will still be asked concerning the working practices of the engagement. We can now see this beginning to align with case law & HMRC’s own guidance for determining IR35 status and case law.



“In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail.”

 (Hall v Lorimer 1993)

CEST’s inclusion of intellectual property rights

Whilst the tool has undoubtedly been improved, bizarrely HMRC have included questions concerning the ability to retain intellectual property rights. The ability to retain such rights following the completion of a contract is rarely a useful factor in determining IR35 status. This is simply because, in the commercial world, end clients will hardly ever relinquish their rights to intellectual property. If it is possible for a contractor to retain IP rights, this would demonstrate an opportunity to profit from the sound management of their business. However, it would still be necessary to consider the contractor’s working practices as a whole.


A hint of mutuality of obligation?

In a nod towards mutuality of obligation, some questions have been added concerning the ability to undertake concurrent contracts and continuous working for the same client.  However, CEST still fails to fully address this issue despite it being an important status test as proven by case law. Most recently with HMRC’s appeal in the Kickabout Productions Case, which they subsequently won.


Is CEST looking in the wrong direction?

There are roughly the same number of questions relating to MOO as there are regarding the ability to retain intellectual property rights. This raises certain questions when you consider that you would be hard-pressed to find any case where intellectual property rights was a key factor in determining IR35 status.

Fundamentally, CEST cannot be solely relied upon because it is still, for all intents and purposes, a checklist. Its opinion is that of a computerised response, with no option to provide additional information. As indicated above, CEST is not aligned with case law. There is no way of knowing whether the responses to the questions posed by CEST are 100% accurate and in accordance with HMRC’s own guidance when using the tool. HMRC will only stand by the result provided if the responses are accurate.

Whilst CEST is useful as a guide, the opinion provided should only be used alongside other supporting evidence and should not be solely relied upon as the basis for determining IR35 status. To get a full view of the reality of your engagement, you should consider undertaking an independent third-party review. Here at Qdos, we can provide a combined and all-encompassing approach of a contract review and working practices review.

Get in contact with a member of our team today to discuss the range of IR35 reviews we can provide.


Qdos Contractor
Written by
Qdos Contractor
Award-winning providers of insurance for the self-employed, Qdos are the leading authority on IR35, offering industry-leading employment status services to ensure the flexible working industry thrive. Qdos are the Best Contractor Insurance Provider 2022 and won the Queen’s Award for Enterprise in Innovation 2022 and 2017. 

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