HMRC Disregard CEST Tool at Tribunal

HMRC disregard own IR35 testing tool as irrelevant in recent tribunal


HMRC have deemed their own CEST tool as ‘irrelevant’, report contractor news site ContractorCalculator.

The CEST (Check Employment Status for Tax) tool was introduced as a tool to enable contractors and the organisations that engage them to make an IR35 determination. Whilst HMRC purport the tool as guidance only, it is heavily promoted by HMRC as the only option and organisations have been reported to be actively requested to complete it.

In the recent case of RALC Consulting Ltd v HMRC, IT contractor Mr Alcock provided an in-depth analysis of his CEST assessment giving an ‘outside IR35’ result, of which HMRC applied to exclude as evidence. The application was denied by the Judge.

It is not clear exactly why HMRC would not accept a CEST assessment as evidence as they provided no guidance regarding what areas of the assessment it disagreed with and why.

HMRC stated the retrospectively submitted test to be “of no assistance to the tribunal in determining the issue”, noting that “it is only the application of the legislation and relevant case law to the hypothetical facts that must be considered by the tribunal”.

This isn’t the first time the CEST tool has fallen at tribunal. Late last year an inside IR35 CEST determination was overruled by a Judge at the Tribunal of Mr Elbourn. Mr Elbourn’s CEST assessment gave an ‘inside IR35’ result which was disputed by the Judge who found him to be genuinely self-employed, meaning that the tax and NI deducted from Mr Elbourn’s income would have to be repaid to him.

Such occurrences will have a further harmful effect on HMRC’s reputation and organisations’ trust in the tool, which has been heavily criticised since it was introduced in 2017 for the public sector.

The test focuses on a very small number of questions and users are to “choose answers that best match the usual working practices of the engagement” leaving little room for users to provide very specific details regarding their engagement. The test has also been criticised for its over-reliance on the substitution test and its lack of reference to mutuality of obligations.

The recent cases of Mr Alcock and Mr Elbourn will now leave contractors feeling even more uncertain about the tool and whether the determination will be accepted by HMRC and Judges alike.

It is important for contractors to be aware that CEST is not compulsory and there are more efficient and accurate ways of determining your status, such as talking to our experts here at Qdos.

By:Becci Hicklin

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