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More about CEST

Published on 16th December 2019

HMRC has released an updated Check for Employment Status for Tax (CEST) online tool. It is designed to be used to find out whether a contractor should be classed as employed or self-employed for tax purposes, and whether or not their status is in line with IR35 legislation.

As might be expected, contractors are not happy about the developments, and your practice is likely to be affected if you have clients that include contractors of the businesses that use them.

What is happening?

On 6 April 2020, IR35 rules, which currently apply only to the public sector, will also come into force in the private sector.

They will determine whether or not a contractor, freelancer or casual worker is actually an employee, and should be subject  to PAYE and appropriate NI deductions.

The move has been seen as necessary to reflect the growth of the gig economy, which attracts every type of worker from Uber drivers to software consultants, and to claw back some of the tax revenues that HMRC was missing out on as a result.

Naturally, your clients are not so keen on the development, and many will be set to argue their independent status should continue. Having takehome pay cut by around a third is a very real prospect for many, and those who cannot respond by simply increasing their rates will be considerably worse off.

The CEST tool was originally created in March 2017 by the government to provide a way to settle these arguments and to determine the status of a worker by asking some simple questions using an online service which was meant to produce definitive and instant results. Questions cover worker’s duties, substitutes and helpers, working arrangements, financial risk, worker’s involvement and contracts and several other topics.

Criticisms had been levelled at the tool ever since. The most telling being the fact that it was incapable of delivering a definitive answer in cases where the employment status is borderline or includes features that challenge the basic assumptions of the tool itself. It means that the CEST only produced an answer in around 85% of cases, rendering it useless for the kind of questions it would face in the real world.

HMRC recognised the strength of these arguments and reportedly consulted stakeholders to help guide the update, and rigorously tested against case law and settled cases. They found that the original iteration of CEST was indeed wanting, and promised to enhance the tool before the IR35 reforms were rolled out to the private sector. This update looks to have delivered on that commitment. It is understood that more than 300 stakeholders were asked to use the new version and feed in comments. Around 30 questions have been introduced or updated or included, and the results have been rigorously tested against case law and settled cases by officials and external experts.

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Can you rely on CEST?

Several reports suggest that CEST is now reliable enough, and using it now will help those affected time to plan ahead before the April deadline. Those that can now get a defined answer will be be happy with clarity if not the result, and those that are still on the borderline will have time to take further action to ensure they can have a correct status assessment ahead of the new rules.

Getting things right is essential. Failure to correctly assess contractors could lead to backdated demands for unpaid PAYE, tax and NIC, and fines for delays and late submissions, not to mention reputational damage which could impact the ability to attract contractors and other temporary workforces.

What does this mean to you?

The new tax regime will inevitably mean issues for accountants. Many contractors in the public sector, where stricter rules about off payroll working have already become the norm, have already gone back into full employment. Some accountants say their private sector clients are choosing to go PAYE ahead of the 2020 deadline, rather than risk the very real prospect of retrospective tax penalties. In some cases, this means they no longer require an accountant to help them with their tax - If  your contractor clients shift towards PAYE ahead of the April 2020 deadline, many of these contractor no longer need your services.

However, it might be possible to take an entrepreneurial role yourself.

IR35 requires businesses to take stock of their workforce and consider its shape. Many have habitually hired contractors when needed because it’s easy but can fail to properly monitor and measure performances.

This may present new opportunities for your practice. A full audit of contractor relations, looking at whether it’s a role that can be brought in-house or whether the necessary steps can be taken to maintain their outsourced status requires your expertise.

Your corporate clients may be bringing you more work, just as your contractor clients may be bringing you less.

If you are ready to see CEST as an opportunity rather than a threat, you might want to look at using it as the basis for growing your practice, and you might want ot call on Rangewell.

At Rangewell, we specialise in business funding – and we are completely independent, which means that we can search the entire market to deliver the most appropriate – and the most competitive – funding for your practice development needs.

Take your next step to growth now - working with Rangewell is simple. We have a dedicated partnership team for you to call – and once you have, you can have our nationwide resources working to help you grow your practice.

It can mean having access to the funds you need - and additional opportunities for revenue for your practice and valuable new services for your clients – and a chance for your practice to grow by offering the one-stop-shop for financial answers that clients are looking for.

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Richard Mitchell

Richard Mitchell

Content writer
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