HMRC’s CEST tool has left hundreds of thousands of contractors in ‘no man’s land’ regarding their IR35 status
The latest figures for HMRC’s IR35 tool (Check Employment Status for Tax) have exposed its flaws yet again, according to industry experts.
The data revealed that between 25 November 2019 and 31 May 2021, CEST was used 1,018,250 times to determine the IR35 status of contractors.
Of those, 499,974 were deemed outside IR35 and 308,176 were deemed inside IR35.
However, in as many as 210,100 cases, CEST was unable to deliver a determination – a result that leaves contractors and businesses “in limbo” regarding IR35 status.
‘Final nail in the coffin’ for HMRC’s IR35 tool
IR35 expert, Seb Maley, CEO at Qdos, said: “Here we have proof that CEST has left hundreds of thousands of contractors and businesses in limbo, unsure of whether a contract belongs inside or outside IR35.
“It should be the final nail in the coffin for this fundamentally flawed tool.
He added: “I’m interested to find out what has happened to these engagements. Have HMRC got the resource – not to mention expertise – to offer support on this scale? I doubt it. This staggering number of undetermined results leads to confusion, delay and in many cases, non-compliance.”
Matt Fryer, Head of Legal Services at Brookson Legal, said there is a “grey area” with the CEST tool and figures show that at least one in five contractor roles need to be audited by a specialist to accurately determine their IR35 status.
Since April this year, changes to the off-payroll rules mean IR35 compliance is now the responsibility of medium and large businesses, therefore it is “vital that businesses act now to support contractors”, Fryer explained.
Businesses not confident in making IR35 determinations
“There is currently a huge discrepancy between the CEST usage data for outside IR35 determinations and the number of private sector contractor jobs being advertised as outside of IR35.
“Jobfeed market data indicates that only 26 per cent of contractor roles are currently being advertised as outside IR35 (w/c 7 June), whereas the CEST data indicates that this figure should be more like 49-56 per cent. This suggests that many firms are still not confident in the determinations that they are making.”
End clients need ‘clear’ guidelines
Andy Chamberlain, Director of Policy at IPSE echoed Fryer’s concerns. He told Contractor Weekly: “The number of ‘undetermined’ judgements from the CEST tool is testament to just how difficult it is to compress a complex question like IR35 status into a simple yes or no tool. The short answer, we find, is that you can’t.
“If you had to try and build a tool to judge status, you still wouldn’t go about it like this. CEST suffers from the fundamental and overriding problem that it does not account for mutuality of obligation between contractors and clients. Without accounting for this vital aspect of the case law, this tool will never be effective.
“[…] What clients really need are clear employment status guidelines which explain when it is and is not appropriate to engage someone off-payroll. Without addressing the underlying confusion of employment status, a tool such as CEST will never be able to provide reliable determinations.”