To help work out whether or not a contract falls within IR35, HMRC released an online tool just in time for the public sector implementation in April 2017. CEST has been updated since then, but reviews of the system have been somewhat mixed.
The CEST (Check Employment Status for Tax) tool determines whether or not “a worker on a specific engagement, should be classed as employed or self-employed for tax purposes.” The system collects information relating to the individual using multiple choice questions. Here are some examples:
- Does the contractor provide their services via a limited company?
- Can the worker provide a substitute (or have they already)?
- To what extent does the client exert control over the contractor, e.g. can they move the contractor to a different role/location, decide how and when the work is done, etc.?
- Is the contractor an ‘office holder’?
- Does the contractor receive any ’employee’ type benefits from the client?
- What happens if the client is unhappy with the contractor’s work?
- How is the contractor paid – fixed price, or by the time period?
The CEST tool processes all answers and determines whether or not the Intermediaries Legislation (IR35) applies to that particular engagement. A summary of all answers is provided, including notes on how HMRC has interpreted its understanding of IR35 as it relates to each employment status factor. If CEST deems you are caught, then the engager becomes responsible for operating IR35, and if not, you can carry on operating outside of IR35.
There are cases where the tool has been unable to make a determination on employment status at all and there are also some caveats listed within the summary report. HMRC say they will ‘stand by the result given unless a compliance check finds the information provided is not accurate.’ Added to this, HMRC will not stand by decisions where contrived contracts have been entered into.