Employment status tool is good for the low paid
Meredith McCammond from LITRG is encouraged by HMRC’s recently enhanced CEST tool and its role in preventing the miscategorisation of low-paid workers as self-employed.
There has been wide criticism of earlier versions of HMRC’s check employment status for tax (CEST) tool. However, HMRC has now enhanced it, with help from the low incomes tax reform group (LITRG).
For many of LITRG’s constituents, the new version is an improvement. It is certainly better in terms of helping hirers or workers with a general tax status query and in particular, it helps workers identify when they are being falsely self-employed (ie treated as self-employed when it is clear that the true nature of their engagement is that of employment).
Disadvantages of false self-employment
We see many queries to our website that suggest false self-employment is on the rise, the effects of which can be detrimental and far-reaching.
This is a real example of a query LITRG received:
“My job is as a leaflet distributor. I was initially PAYE, but my employer has informed me that I am now self-employed. I have undiagnosed learning disabilities and require step-by-step help with what to do in order to pay tax and National Insurance that is due. My sister is trying to help me, but we really do not know where to start. I do not have a business, but my employer says that I am now self-employed. Am I a business? What form should I be filling out to work out my tax and NI?”
Those who are falsely categorised as self-employed miss out on employment rights and the certainty of having their taxes dealt with under PAYE.
Also, if a person is treated as self-employed for tax purposes, they are likely to declare themselves as self-employed for universal credit purposes, which is an arguably a less generous and more burdensome route to obtaining that benefit.
Much false self-employment appears to be intentionally foisted upon workers in order to drive down the engager’s costs and responsibilities, especially employers’ National Insurance (NIC).
However, some is accidental – when those taking on workers simply don’t understand the rules and distinctions. With appropriate awareness-raising and signposting, the new version of the CEST tool could help in both scenarios.
One of the criticisms of the old CEST tool was that it tried to do too much.
In particular, it wasn’t clear how to access the part of the tool that dealt with general employment status queries. This was via the third question: “How does the worker provide their services to the end client?” The user needed to choose: “as a sole trader”, whether the worker was a sole trader or not.
The very first question of the enhanced CEST tool means that people can access the part of the tool that they need from the outset.
LITRG was concerned about the language used in the old CEST tool, some of which was at grade 12 in a reading age checker, the same reading level as required for the Harvard Law Review.
There was also a very problematic technical question about “office holders”. That question still exists but at least the phrase has been put into quotation marks to help show that it has particular meaning and doesn’t just mean whether or not you work in an office!
The new CEST tool is more approachable and user-friendly, and the language is easier to understand than the previous version. This, in turn, means the results should be more reliable as they should be based on more accurate information being used as inputs into the tool.
The output at the end is now well laid out. For workers, it tells them to download a copy and show it to their engager – something LITRG specifically asked for.
There are still some limitations with the tool as far as low paid workers are concerned.
The CEST tool only looks at employment status from a tax perspective, not from an employment law perspective. Usually, a person who is employed or self-employed for tax law will be employed or self-employed for employment law – but not always.
The CEST doesn’t cover “worker” status. It is therefore unfortunate that we have heard of workers being referred to use the HMRC tool in order to help them determine their employment law status.
Further work needed
Identifying false self-employment is only part of the story for workers. HMRC needs to develop and publicise a clear protocol for dealing with false self-employment.
It is simply not good enough for HMRC to advise those presenting in false self-employment arrangements to look on gov.uk, talk to their employer or complete the self-employment pages of a tax return. What those people really need is a clear pathway to support, and for HMRC to take action against their unscrupulous engagers.
We will continue to raise these issues with HMRC.
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Meredith McCammond is a Technical Officer for LITRG and Chartered Tax Adviser, formerly in practice. LITRG is an initiative of the Chartered Institute of Taxation which is a charity. Since1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated...