CEST: Unfit for Purpose

Ensuring IR35 Compliance with Maxwell Bond | Reliable Tech Contractor Recruitment, Manchester & Berlin

HMRC recently issued a demand for £4.3m from NHS Digital who were found to be non-compliant with current IR35 regulations in the public sector. However, in order to determine the IR35 status of their contractors, NHS Digital used the CEST (Check Employment Status for Tax) tool provided by HMRC. Whilst this tool had made one decision, upon review HMRC refuted the generated conclusion and demanded that the accrued amount of unpaid tax be paid. They then reiterated that the responsibility to correctly determine IR35 remained with NHS Digital, regardless of whether they used they used HMRC’s CEST tool.

Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed, has revealed that “HMRC admits that in 15 per cent of cases [the current tool] cannot even provide a determination.” Flawed, and highly criticised, the CEST tool is inaccurate and inadequate and has caused further confusion and disruption to businesses, without actually reducing any risk. This is why it is important that all hiring managers who engage with contractors seek independent, expert advice from specialists like Maxwell Bond who have the knowledge and skills to help any business navigate and mitigate the risks imposed by the upcoming changes to IR35 regulation in the private sector.

The most obvious problems with the CEST tool are rooted in its over-simplicity:

  • CEST fails to acknowledge and align with full case law, so key areas are ignored or omitted
  • Mutuality of obligation (MOO), which is a key determiner of IR35 status is not considered
  • Assessments are based on an inadequate number of questions, which oversimplifies the complexity of IR35
  • CEST wasn’t assessed under Government Digital Services (GDS) standards, criteria for government-run digital services for public use
  • Industry stakeholders and employment status specialists have heavily criticised the tools failings, with many believing it is not fit for purpose
  • It doesn’t demonstrate reasonable care - a legislative requirement of assessing IR35 status
  • NHS Digital used this exact tool and they have been found to be incompliant

HMRC have already promised an updated and enhanced version of the CEST tool, pledging to make the tool “clearer, reduce user error and consider more detailed information”, however they stressed that they still stood by the current results of the CEST tool, despite mass complaints that it is inaccurate. Most businesses have argued that, whilst an enhanced version of the CEST tool suitable for the private sector would be welcomed, the initial issues with the tool need to be addressed first. Andy Chamberlain said he is “not confident the update would do enough to solve the problems in the current CEST tool”.

Understandably, businesses are concerned about compliance, given the lack of formal advice and no provision of reliable working tools from HMRC. Some companies have decided that in order to avoid disruption and financial penalties, such as those experienced by NHS Digital, to refrain from hiring contractors altogether, and instead operating solely on a PAYE system. Businesses taking these extreme approaches include Barclays, GlaxoSmithKline, HSBC, and Lloyds, although some are already starting to see the issue with this approach. Whilst this risk-adverse reaction to the upcoming IR35 changes is an obvious option, it is also unnecessarily extreme and could cause more hindrance to company operations as they lose talent to companies who approach IR35 with reason.

If you are a contractor, it’s worthwhile ensuring that the company you are contracting for is approaching IR35 responsibly so that you know you are being paid, treated, and hired correctly and lawfully. Schroders, for example, has just become the first financial services organisation to announce that it will be relying on CEST to determine IR35 status, despite other financial sector businesses condemning the tools “shortcomings”, stating that it needs ‘immediate review’, and upgrading. Already, one contractor has already disputed the IR35 status determination she has been given, claiming that the CEST tool is still producing incorrect results. As she has been deemed inside IR35, it could have an impact on her take-home pay. This increases the chance of quality contractors moving to other companies who will assess IR35 more carefully and accurately, meaning that businesses like Schroder's will find it harder to find talent and will end up paying a premium on any talent they do hire.

Companies who don’t engage with IR35 responsibly and reasonably will lose the top talent to competitors who do, as contractors working with companies who are incorrectly determining them as 'inside IR35' are losing money. Maxwell Bond have assessed all information on IR35, and have top strategic partners across the legal sector, in order to provide businesses and contractors with informed, accurate, and useful advice as we approach April 2020. Early preparation is key to managing the transition without any disruption, and we are on hand to help you plan ahead. Furthermore, when you hire with Maxwell Bond, we adopt all accountability, indemnity, liability and insurance to help businesses eliminate risk and exposure to IR35.

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