In the run up to April 2021 businesses are turning to HMRC’s check employment status for tax (CEST) tool for status answers. However, in many cases it’s failing to provide them. What should you do if it doesn’t work for you?
IR35
In April 2021 the IR35 rules will change so that medium and large businesses must decide the employment status of individuals who provide services to them through an intermediary, e.g. a limited company. After years of trial and error HMRC launched the definitive version of its check employment status for tax (CEST) tool to help (see The next step ).
Binding decision
While using the CEST tool isn’t compulsory, the advantage is that HMRC will stand by the result it produces as long as the data you provide was correct and entered accurately. Tip. You can use the CEST tool to check if IR35 applies to any contracts you have with your clients even where the new rules aren’t relevant, e.g. where your client is a small business so the onus is on you to check your employment status forIR35purposes . You can also use it as a tool to help identify where you need to modify your contracts and working practices to prevent IR35 from applying.
Computer says “don’t know”
There’s no doubt that the CEST tool is useful and you don’t have to accept the result it gives. The trouble is HMRC’s own statistics show that in many cases the CEST tool fails to decide one way or the other. Based on usage between November 2019 and November 2020, the tool determined that 52% (505,598) of instances were outside IR35 , 29% (281,099) were caught by IR35 , and for 19% (188,719) of cases it couldn’t decide.
Further steps
Where the CEST tool is inconclusive HMRC says you should check its Employment Status Manual (see The next step ). Even though the guidance is lengthy we recommend referring to it. If you then conclude that IR35 doesn’t apply, keeping notes of key points which helped you arrive at your conclusion can protect you from penalties in the event that HMRC overturns your decision.
If the CEST tool can’t decide the employment status, refer to HMRC’s manual on the subject. Keep notes on how you arrive at your decision, especially if IR35 doesn’t apply. This can protect you from HMRC penalties.
The next step
HMRC’s manuals
HMRC’s Guidance: Check employment status for tax
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