What are your views on the new CEST tool?

Rhian Lloyd, Senior Manager at Aspire, discusses HMRC’s new and shiny Check Employment Status for Tax tool (‘CEST’) which was unveiled on 25 November 2019. The Employment Status Manual has also been updated to provide extensive guidance on CEST (see ESM 11005 et seq)– this includes a background on the topics explored by the tool as well as examples throughout.

One update is that the CEST tool now asks you to differentiate as to whether you are using the tool to determine whether a worker is employed or self-employed, or whether the off-payroll working rules apply or not. I assume this is for clarification purposes only for the wording of the outcomes as we cannot see that there is any difference between the questions relevant to the status of the individual.

Background

CEST was introduced in March 2016 as an online multiple-choice mechanism to determine a worker’s employment status for tax and National Insurance Contribution (NIC) purposes. It has been under intense scrutiny and, almost immediately following its introduction, HMRC have been working on this new, updated version.

HMRC’s considerations

The party completing CEST could be the worker, the hirer (‘client’) or the agency. Interestingly, the guidance and the tool itself do not refer to an umbrella company/contracting intermediary throughout, despite these entities being prevalent in off-payroll working supply chains and where they do appear, are the fee payer.

The details required to complete the tool are in relation to;

• Worker’s right to substitute – the guidance states a requirement to provide a personal service is an essential feature of an employment relationship. It also states that, if the client pays the substitute, it suggests that it is the client, not the worker, who is providing the substitute. If the client can reject the substitute this indicates there is a requirement for a personal service.
• Worker’s responsibilities – HMRC guidance states what is important is the right of control over what a worker does, how they do it, when they do it and where. The right does not need to be exercised in practice for there to be control. Interestingly, the guidance states that the first place to look to establish the existence of control is the written terms. We would not expect HMRC to recommend this on the basis that it is so easy for terms to be drafted in a manner that do not reflect the reality of the arrangement whatsoever. It then continues to state that “Consideration of working practises may also assist you” therefore this alludes to the written terms taking precedent over the reality of an assignment
• Expected working arrangements and who is responsible for deciding how, when and where the work will be done – HMRC consider that even if the worker has flexible working arrangements or the ability to decide when to take breaks, they will still fall inside the hirer dictating working hours. Similarly, if a hirer can put a stop to flexible working arrangements (e.g. an occasional ability to work from home) then this means the client has the right to decide where the worker works
• How the worker will be paid – HMRC hold the view that where an individual incurs a significant risk, with a view to making a profit, this will suggest they are running a business and self-employed. CEST investigates costs (such as equipment costs, vehicle costs, material costs and other costs), how the worker is paid and putting right faulty work. In terms of costs, I think HMRC are missing out on a “not applicable” option. For example, one question for a hirer is “will the worker have to buy materials before your organisation pays them?” with ‘yes’ and ‘no’ being the only answers available. ‘No’ might be relevant for a number of individuals who simply are not required to provide their own materials as the hirer has organised these, however by inserting ‘no’, HMRC may interpret this as the hirer pays the worker the cost of materials prior to the worker needing to pay
• Entitlement to corporate benefits or reimbursement for costs – HMRC deem that the greater the degree of integration into an organisation, the more likely it is for an employment relationship to appear. This includes being provided with non-statutory benefits and having management responsibilities
• Whether the worker can provide similar services to other engagers elsewhere during the contract – HMRC state that if a worker works for a number of separate clients, either consecutively or concurrently, they are more likely to be running a business as they are not financially dependent on a single hirer. It is considered that a worker who works for a single client for a long period is unlikely to be running a business. The worker would be free to work anywhere else without contractual restrictions, including for competitors

What about mutuality of obligation (‘MOO’)?

As you can see, HMRC have decided to uphold their decision not to include MOO as a consideration for CEST. HMRC’s view is that MOO exists where a consideration is made (i.e. a worker works in exchange for pay).  This contradicts the general opinion that MOO only applies if the hirer has an obligation to offer work and the worker has an obligation to accept that work offered.

It is disappointing that HMRC have not updated their stance on MOO, or other aspects of the tool for that matter, following losing several IR35 challenges at Tribunal.

HMRC’s stance

HMRC continue to state that they will stand by the result of CEST provided the information input is accurate. CEST does not keep a permanent record of entries or results therefore you must download or print a copy of the result if you plan to rely on the CEST result.

HMRC warn against contrived arrangements which they define as;

“Where parties deliberately use information that does not reflect the actual contractual or working arrangement, or artificially create circumstances to arrive at a particular outcome”.

Those who achieve results through contrived arrangements could be subject to financial penalties.

CEST Output

Unhelpfully, the first time that I used the updated CEST tool, the outcome I received was “Unable to make a determination (for whether the off-payroll working rules apply)”. This is one of six available outcomes, along with whether or not the off-payroll working rules apply and whether the worker is employed or self-employed or if this cannot be determined.

If an outcome cannot be determined, HMRC state further guidance and advice will be provided by contacting the HMRC helpline. Alternatively, HMRC recommend seeking advice from tax advisors.

Speak to us

Let us know your thoughts if you have used the new CEST. Join us at our seminars on 11 February 2020 in London and 13 February 2020 in Birmingham where we will be discussing the off-payroll rules and other key new legislation. Booking information will be released shortly. To express an interest email enquire@aspirepartnership.co.uk.