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CEST, the business lifeline that isn’t fit for purpose

A revelation has surfaced involving the five-year stagnation of HMRC’s Check Employment Status for Tax (CEST) tool. CEST is relied on by countless companies to assess IR35 status, so they can determine whether a worker is a contractor or employee for tax purposes.

But a Freedom of Information (FOI) request by IR35 compliance firm IR35 Shield, found that the much-used tool has been frozen since 2019. During this time, more than 20 IR35 tax tribunal hearings have been held, including the landmark Atholl House Court of Appeal decision, which resulted in HMRC dismantling its approach to IR35 status determinations.

Failure to update the tool comes despite explicit promises by Jim Harra, Head of HMRC to Parliament that the resource would be constantly revised to align with evolving case law. In March 2019, Harra had told the Public Accounts Committee: “We continually update the tool as new tribunal and court decisions are made about employment status, as well as continually increasing its scope so that it can respond to more and more types of cases… It is an ongoing, unending process.”

In freezing CEST, businesses using the resource to determine the IR35 status of workers, are making decisions based on outdated and therefore inaccurate information, which fails to reflect current legal requirements. This could potentially result in businesses facing hefty tax liabilities and penalties, particularly in relation to freelancers operating through limited companies.

Commenting on the FOI finding, Dave Chaplin, CEO of IR35 Shield, said that as it stands, companies are making decisions based on outdated logic which no longer reflects the current legal landscape. “The FOI response provides irrefutable evidence proving CEST’s decision engine has been collecting dust for half a decade,” said Chaplin.

Businesses that have been using CEST are being advised to consider studying the independent evidence that is in the public domain which now demonstrates that ‘Outside IR35’ assessments which were produced by CEST create risk rather than reduce it.

Phill Machell

Phill Machell, former Executive Director at Michael Page Interim, has been appointed as Partner at Bailey Montagu, one of the UK’s most innovative and respected executive search and interim management firms.