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HMRC & BBC Director-General Disagree over CEST

In a meeting held on 30th April between the Public Accounts Committee (PAC) and Jon Thomson, Permanent Secretary of HMRC, and Jim Harra, Second Permanent Secretary of HMRC, the BBC Director-General’s claims over the usefulness of the CEST (Check of Employment Status for Tax) tool were refuted by HMRC.

The Committee Chair wasted no time in asking HMRC of their response to Lord Hall’s statements given at a previous committee meeting on BBC pay, and asked;

Will you tell us first of all, do you accept Lord Hall’s description of this test as not fit-for-purpose? Is that something you would agree with?”

HMRC’s response was an emphatic ‘no’ which one cannot be too surprised about as they are hardly likely to admit defeat with regard to the CEST tool. However, it does demonstrate a somewhat scant disregard for those TV and radio presenters who gave evidence at a recent Select Committee Hearing regarding their treatment by the BBC concerning their employment status and pay. During the Hearing, the presenters spoke about how difficult it was to apply the tool to their particular circumstances along with their hardship caused by uncertainty over their employment status.

HMRC were asked to elaborate on their response to which they stated that a considerable amount of time had been spent with the BBC’s Compliance Manager to provide help and guidance and to ensure compliance. That may well be the case, but the help and guidance HMRC claim to have been provided has clearly been a futile exercise.

The PAC Chair went on to say that they have evidence of many people being very confused and that the CEST tool may be providing unreliable results.  Jim Harra responded by stating that;

“Our calculator has been designed to comply with case law on establishing employment status…It is ultimately a guide, and there is furthermore detailed guidance that people can turn to if it doesn’t help them, but we believe that in 85% of cases it gives a response that the engager can use and that we stand by.”

Our experience of the CEST tool is that it does not comply with case law on establishing employment status. It fails to address one of the key employment status tests – Mutuality of Obligation – and the Courts have actually established that a mechanical/checklist approach to determining employment status does not work. This was highlighted in one of the latest Tribunal cases concerning MDCM Ltd; the Tribunal, in reaching its decision cited Hall v Lorimer (1994) – a special commissioners appeal case – where Judge Nolan LJ stated that determining whether a person is genuinely in business;

…”is not a mechanical exercise of running through items on a checklist… The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.” 

Additionally, many engagers will be very cautious in their approach and if faced with an indeterminate response, are more likely to confirm a contractor’s status as being within IR35. There are other engagers such as the NHS, who have adopted a completely risk averse approach by stating that all contractors must operate inside of IR35 if they want to work for the NHS. This has lead to a request for a judicial review.

Although HMRC have stated that they will stand by the result provided by the CEST too, so long as the information entered is correct, they advised the PAC Chair that the only way of checking whether the result was accurate is in undertaking an Employer Compliance Check. Jim Harra went on to say with regard to checking the accuracy of CEST tool determinations that;

“We can come along later and audit their [the engager’s] compliance with their employer obligations, including the obligation to administer IR35 and deduct tax and we will check whether they have used the tool correctly and made the correct assessments…so there is no guarantee that we would not go back into earlier years if people had not been applying it correctly.”

This could ultimately mean that many individuals could face being subject to an IR35 enquiry following a Compliance Review into their public sector engager. No mention was made to the fact that it was recently revealed in a Freedom of Information Request that there is no evidence to prove that the CEST tool can provide an accurate result.

Our recent experience of defending IR35 enquiries is that HMRC are becoming increasingly difficult and enquiries are taking longer to defend. We are reminded of HMRC’s previous handling of enquiries before the new administrative approach to IR35 was adopted in 2015.  HMRC seem to have forgotten their obligations set out in the Taxpayer’s Charter, the key aim of which is to “give you a service that is fair, accurate and based on mutual trust and respect. We also want to make it as easy as we can for you get things right” which seems rather ironic in the current circumstances.

What is important to remember is that the CEST tool is not mandatory and should, particularly in the current circumstances, be used as guidance only rather than being relied upon to determine IR35 status. Whilst it can prove useful alongside other evidence, the CEST tool will always have its limitations as a mechanical tool which cannot consider the ‘overall picture’.


Qdos Contractor are leading IR35 experts, having defended over 1,500 enquiries since 2000, providing contractor insurance policies, contract reviews, and most recently, reform management systems for public sector agencies/engagers and their contractors.

By Qdos Contractor

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