CIOT criticises HMRC CEST tool

The CIOT believes that HMRC’s CEST tool needs to be significantly improved if the rollout of the off-payroll working rules to the private sector is not to lead to uncertainty and protracted disputes over tax status between businesses and workers.

The Chartered Institute of Taxation (CIOT) has previously raised concerns that Check Employment Status for Tax (CEST) ‘does not factor in all the criteria established by case law as needing to be considered before its algorithms reach a decision on whether IR35 applies; a view that is borne out by the cases that have been argued in the courts over the years on when IR35 applies and when it does not’.

Consequently, CEST does not always give an accurate employment status determination, with the CIOT warning that this does not instil confidence in those relying on CEST to help with status decisions.

Colin Ben-Nathan, Chair of CIOT’s Employment Taxes Sub-committee, commented, “If businesses are to make the correct decisions on whether the off-payroll rules apply then we think that the existing CEST will need to be significantly improved. And we also think that the improved version will need to be ready by October 2019 at the latest so that new and existing contracts can be reviewed by April 2020.

“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. And this is important because otherwise the lack of confidence in CEST will increase disputes between businesses and contractors and so lead to significant time and effort having to be expended by businesses, contractors, HMRC and the courts in trying to resolve them.”

He added, “We welcome the Government’s decision to exclude small private sector entities from the off-payroll working rules, although we would suggest the Government consider extending the exclusion to small public sector entities to ensure a level-playing field. However, we also suggest the Government considers how employee numbers are to be calculated in the small entity test, as a test based on a simple count of employee numbers (even if averaged across the year) may discriminate against businesses with predominantly part-time employees. It would be unfortunate if this affected the behaviour of some small businesses by discouraging them from taking on part-time employees in order to retain their ‘small’ status.

“We are very concerned by the proposal to transfer liability back to the first agency in the supply chain – and ultimately, where HMRC is unable to recover the liability from the first agency, the end client – where HMRC are unable to collect an outstanding liability from a defaulting party further down a supply chain.”

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