ICAEW.com works better with JavaScript enabled.

CEST: HMRC clarifies enhanced employment tool

Following concerns raised by the ICAEW Tax Faculty, HMRC has clarified parts of its check employment status tool (CEST), an important process of the IR35 rules.

January 2020

The ICAEW Tax Faculty has received some clarification from HMRC about how to use its employment status tool, CEST.

The faculty was concerned that the instruction on who should operate PAYE might be wrong where the user of the tool has told it that they are a worker.

It was suggested to HMRC that CEST’s instruction as to who should operate PAYE (ie, the personal service company (PSC) or someone else higher up the labour chain) should differ based on whether (currently) the client is in the private or the public sector. The faculty pointed out that CEST does not appear to provide a means to tell it which sector the client is in.

HMRC has clarified that it does for those who have selected the “Worker” option in response to the question “Who are you?”, as this leads the user on to a question, asked only to those who have told the tool that they are a worker, “About you and the work” which asks “What do you want to do?”, which provides two options for the user to choose from, namely “Make a new determination” and “Check a determination”.

The meaning of these two options and which option users should click on is as follows:

  • If under the current rules the client is in the private sector (or if under the prospective rules the client is private sector small), click on the first option “Make a new determination”. If the tool determines that the contract is within IR35 the instruction will say “Your intermediary needs to operate PAYE.”.
  • If under the current rules the client is in the public sector (or if under the prospective rules the client is private sector large or medium or is public sector), click on the second option “Check a determination”. If the tool determines that the off-payrolling rules apply, the result will say “You are classed as employed for tax purposes for this work”. This means that someone in the labour chain above the PSC is responsible for accounting for PAYE.

The logic of the distinction between “Make…” and “Check…” is that, from the contractor’s point of view, under current law contactors working in the private sector are responsible for making employment determinations, whereas for contractors working in the public sector the client will already have made a determination so the contractor is checking it (under the prospective rules, for private sector read private sector small, and for public sector read public sector or private sector large or medium respectively).

HMRC has undertaken to consider the faculty’s suggestion that rewording these two possible replies to the question to enable the user of CEST to select the sector that the client is in, rather than have to understand HMRC’s interpretation of the meanings of “Make…” and “Check…”, would be simpler for users of the tool to understand.

The faculty also expressed concern about the absence of questions about mutuality of obligation (MOO) in the context of employment status (sometimes known as specific or relevant MOO). HMRC has explained that CEST follows its view which is that because a contract exists, there is MOO.

MOO is not taken much further in the tool questions but is expanded upon in HMRC’s guidance in ESM0543 (linked via the phrase “There must be a contract in place…” signposted from the landing page).

The faculty has again told HMRC that the absence of relevant MOO questions within CEST undermines the tool’s validity as a means for businesses and contractors to determine employment status with certainty and obtain a result that HMRC will stand by, and HMRC undertook to consider this further.

This article first appeared on ICAEW Taxline

Liked this? Read these:

London Accountant

Go to London Accountant for more features, news and opinion.
Follow us on Twitter @ICAEW_London and join us on LinkedIn: LSCA and Croydon.
Subscribe to ‘regional updates’ to receive more articles.