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.”
CEST has been like this for years, there’s been no meaningful attempt to make the rules clear.
Just another example of an incompetent but arrogant government determined to push through a policy without any scrutiny or planning.
Simply demonstrating their prevailing attitude of “to hell with the human consequences”.
See also Finance bill, Universal Credit, exams fiasco, herd immunity, Northern Ireland protocol, EU withdrawal agreement, international trade deals giveaway, UK disunion, plundering state funds, deliberately killing the NHS with ‘free-doom’ etc, etc, etc.
In a crisis meeting for structurally failing project yesterday. ‘We need to get all hands to the pumps and really push through’ after a rousing but empty speech wilfully ignoring the impediments ‘now let’s crack on and make sure we hit this one out of the ground’. A distraction followed by a swift exit left blank looks all round.
The living standards of Post Empire squandered on the entitled playing fields of public school.
The company I contract for is desperately trying to hire ‘staff’ people but they want just don’t exist and the pay is awful. They need contractors but can’t get them either because of blanket ‘inside’ contracts. The rates are terrible. Projects are slipping and they will fail to deliver. This government is the architect of its own downfall.
In the IR35 review (yes, I know, try not to laugh) and the tax simplification discussions HMRC acknowledged that the CEST tool was flawed and did not take account of case law. They promised to fix it – what happened to that?
Why are the likes of IPSE not banging that drum very loudly?
I was talking to an agent on Monday and he told me that “there appears to be a cartel of finance type companies in London (insurance, financial services, banks etc) who have agreed that no-one will work outside IR35 in their sectors”.
I pointed out that might be ok if they were paying the tax differential, but they’re not, the rates are the same or lower than they were before the latest changes.
Downright illegal, immoral… grrrr. Time to get out of IT.
I think I’ll find out which companies are offering inside IR35-only contracts and refuse to buy their products. I wonder how a kick in the wallet will affect their viewpoint. It seems to be the only language they understand after seeing how quickly they all rowed back on the GB News advertising thing.
Good idea, let me start with these usual suspects:
– BAE Systems
– Barclays
– Lloyds
– HSBC
– Deutsche Bank
– RBS
Although it might be easier to list companies willing to engage PSCs now rather than the thousands who blanket ban.
Contractor client ratings
https://offpayroll.org.uk/
Pushing contractors to use umbrella route is a hassle . Many contractors have to spend lot of time in extra paperwork. In sone cases , umbrella companies are not transparent about tax , payslips etc. HMRC must allow contractors to work thru own limited companies in order to avoid unscrupulous umbrella companies. NI contribution using limited companies can be easily sorted thru new policies. HMRC must think about it
HMRC don’t have to do anything.
They, like HMG have the arrogance of power. Never ‘apologise, never back down, never explain’ is their paraphrased motto.
The simple answer is to stop taxing income!
Tax expenditure!
They will not address this simple solution because then we will know how much tax we are actually paying
Accountancy smoke and mirrors will be exposed
The simple answer is to stop taxing income!
Tax expenditure!
They will not address this simple solution because then we will know how much tax we are actually paying
Accountancy smoke and mirrors will be exposed
If you’re a populist there’s a simple answer to everything.
You might even get half the country to vote for it if you barrage them with targeted misinformation.