Recent updates and changes to CEST

HMRC’s CEST (Check Employment Status For Tax) digital tool, was in the news recently after they released their first update in over four years. What’s changed, and how does it impact End Clients?

Understanding the changes to CEST

Once the changes to CEST had been released, the industry opinion was that any updates were only cosmetic, with no fundamental change to the technical principles and underlying logic that determines the in or out of scope outcome.

One of the most recognisable updates is that the language has been simplified, designed to improve user experience and make answering the questions much easier.

The questions the CEST digital tool asks were originally designed to help End Clients determine the tax status of their off-payroll workers, and that’s certainly not changed with these minor updates.

CEST and Mutuality of Obligation

The biggest noticeable change to the questions, is around mutuality of obligation, posing the question ‘Do you have, or will there be, a contract in place?’. It’s an important addition however, as HMRC’s digital tool will not let you continue if you enter a no response. This, they say, is because there must be a contract in place between two parties in order to consider whether it is a self-employed or employed engagement. They detail that their definition of whether a contract is in existence is through one of two measures:

• The company engaging the workers has an obligation to pay then a wage or similar renumeration
• The worker is obliged to undertake their own work or skills.

HMRC guidance published on this topic, in their Employment Status Manual ESM11036, states that answering yes to the question will not impact the IR35 status determination.

The importance of CEST

HMRC has not mandated the compulsory use of CEST to make status determinations on the workers, however it has made it clear that it recommends its use. In the newly updated disclaimer at the start of the digital tool, it reconfirms that HMRC will stand by in and out of scope determinations the tool outputs, provided it has been used honestly.

Below we look at instances where HMRC will not uphold CEST outcomes:

• Actions that are deliberately intended to provide a certain result, what they call ‘contrived arrangements’
• Falsely answering questions about engagement terms, intentionally knowing they have been answered in a way that is not correct

When investigated, these would be used as evidence of deliberately attempting to misuse the tool, indicating non-compliance – something they say can attract higher penalties.

Using CEST to manage IR35 compliance

When we’re working with clients, we strongly recommend integrating HMRC’s CEST tool into status determination processes. Using CEST not only demonstrates that your business is taking reasonable care in assessing employment status, but it also provides a clear, auditable record of each determination.

Being able to evidence IR35 compliance through steps such as using HMRC’s digital tool is crucial for protecting your business and proactively managing risk.

There are several benefits to using the CEST tool:

• Shows that your IR35 decisions are based on HMRC’s own guidance, strengthening your compliance position.
• You can save and document each assessment, providing evidence of due diligence and responsible practice.
• You can leverage HMRC’s commitment to stand by CEST results, provided the tool is used honestly and accurately.

Making CEST a core part of your IR35 compliance strategy helps minimise risk and safeguard your business from potential penalties.

Managing the administrative burden that comes with IR35

From understanding the engagement terms of individual workers, to reviewing service agreements and the standard processes workers follow such as their working practices, IR35 can be difficult to manage. Add to that the additional complexity of managing your recruitment supply chain to ensure processes are being followed and deemed payments are in place for in scope workers, and it creates a heavy administrative burden for HR and talent acquisition teams.

To remain compliant with IR35 off-payroll working legislation however, regular check and measures need to be in place to ensure your current IR35 strategy is still correct. Key areas such as staff training also need to be reviewed to ensure those people making Status Determination Statements have adequate knowledge to accurately do so. Whilst periodical supply chain audits can help to identify areas of concern that need further development to protect your business from potential IR35 non-compliance.

These are all services our experienced IR35 team provide to our clients, and we’re always happy to chat to your business to discuss how we can support you.