HMRC updates CEST tool and Employment Status Manual

CEST 2.0

'CEST' is HMRC's free IR35 'Check Employment Status for Tax' tool. It poses a series of questions for end-hirers about contractors they engage. These are designed to determine whether they should be taxed in the same way as permanent employees, or as off-payroll workers. CEST produces Status Determination Statements and IR35 assessments on which organisations and contractors rely to determine their tax status.

However, the CEST tool has been heavily criticised by some commentators for failing to align with IR35 case law, for having its results overturned in tax Tribunals, and for being unable to issue a determination in a significant proportion of cases.

In an attempt to address these issues and to improve the user experience of CEST, HMRC has transitioned the tool to a new platform. The questions CEST asks to determine IR35 status will remain the same, but the following changes have been made:

• HMRC's Employment Status Manual is embedded into the tool. This change is intended to make it easier for users to navigate to the correct part of the guidance for a particular question or area of IR35.

• there are more opportunities to review answers after each section rather than once all questions have been asked. This is intended to help users answer questions accurately, and reduce the risk of receiving an 'unable to determine' outcome.

• The tool will explain the conclusions it has reached from the information that has been inputted. This is intended to help users explain the reasons for receiving a particular outcome.

The launch of CEST 2.0 has sparked mixed reactions within the industry, particularly among off-payroll advisers. Some feel that this is a positive step towards improving the tool's format and process, while others believe that key issues remain unaddressed.

Updates to employment status manual guidance

HMRC has also made some updates to its Employment Status Manual. The Employment Status Manual sets out HMRC guidance on issues relating to the employment status of individuals. This helps to determine employment status for tax and National Insurance purposes.

The updated guidance relates to agency workers and temporary workers. There is an updated explanation of supervision, direction and control (SDC) and how to form a view on the presence of SDC in a particular scenario. This is key to determining status for tax purposes. Some of the examples of the application of SDC have been removed or amended, with a new emphasis on the relevance of a worker being required to comply with regulatory standards such as health and safety requirements, for the purposes of SDC determination.

For more information about the CEST tool and the CEST 2.0 update, please contact Lorna Scully in our Employment team on 0121 227 3719, or complete the form below.