Improvements urgently needed for HMRC’s IR35 assessment tool

(3 minutes to read)

The government has published its draft legislation with proposals to extend the ‘off-payroll working’ rules that currently apply to the public sector, to the private sector.

With the draft finance bill revealing private sector changes, tax advisers are warning that unless there are significant improvements to HMRC’s Check Employment Status for Tax (CEST) tool, the ‘new rules will lead to uncertainty and protracted disputes’.

The Charted Institute of Taxation (CIOT) has repeatedly raised concerns that CEST does not factor in all the necessary criteria (established in case law) that need to be considered in arriving at its decision as to whether or not IR35 applies; a view borne out by the cases that have been argued in the courts over the years, numbers of which have gone against HMRC.

There’s also the fact that CEST does not always give an accurate employment status determination. This does not instil confidence in those relying on CEST to help with status decisions, warns the CIOT.

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 CEST will need to be significantly improved. While HMRC is looking to enhance CEST to ensure it works more effectively, and will be engaging with stakeholders to test these enhancements, it is only undertaking to roll out the new service before the new off-payroll working rules are introduced next April.

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“However, businesses are already making decisions on contracts and projects that will extend beyond next April and they, and their contractors, need to know urgently how those contracts will be taxed from April 2020. So, we think that the improved CEST tool needs 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 key 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.”

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