CIOT criticises HMRC CEST tool

(2 minutes to read)

The criticism comes after HMRC have recently lost a number of IR35 tribunal cases, and an acceptance by HMRC that the CEST tool only provides a determination in 85% of cases.

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.

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“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.”

To find out more about contracting please contact Jaime on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, ContractorUmbrella, it means we can offer one low cost, fixed fee package at £95 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of ContractorUmbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, ContractorUmbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use Tide free of charge for the first year.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

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