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IR35: HMRC updates its Check Employment Status for Tax tool and issues new guidance


At the end of November, HMRC caught everyone by surprise by issuing a new version of their Check Employment Status for Tax test (CEST). CEST is an online tool (effectively a questionnaire producing an employment status “result”) which can be used to help determine an individual’s employment status for tax purposes. CEST will play a critical role in the expanded off-payroll tax regime coming into effect next April - see our recent IR35 briefing

The new version of CEST is a long-awaited response to criticism that the test could only provide answers in the most clear-cut cases. As well as extra questions, the revised test has several links to new Guidance with worked examples. The Guidance is now key because HMRC says it will only stand by CEST results if the information inputted is accurate and if the test “is used in accordance with our guidance”.

The main changes to CEST are summarised below:

  • Substitution
    An important question in the test is whether the individual has the right to use a substitute to carry out their work. The new version has different sets of questions which are informed by their previous answers. The effect is to probe whether the substitution right is theoretical only.
  • Provision of equipment
    There are now specific questions regarding the individual’s requirement to pay for their vehicle, materials and other costs.
  • Business on own account 
    Additional questions are now asked regarding how the individual interacts with customers of the client, as opposed to simply asking if this ever takes place.
  • Exclusivity
    There are new questions which examine the extent to which the individual provides services to other similar clients and whether the arrangement is part of a wider series of contracts with the same client.

Pointers for clients

The new test is an improvement, although there remain industry-specific issues which are not dealt with and the tool still lacks proper consideration of the “mutuality of obligation” test.

Clients will now need to enquire what additional work their contractors undertake outside of the client engagement and whether a majority of the contractor’s working time is spent with a single client.

Clients may need to re-run the test to check that results previously obtained remain valid.

Lastly, clients should build flexibility into their assessment process to ensure that future changes to CEST can be accommodated as this version is not expected to be the final blueprint.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2019

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