The tool, Check Employment Status of Tax (CEST), forms a key part of the procedure public bodies should follow to determine whether IR35 applies to an engagement.
Anger is growing in the tax agent community that the online CEST tool is not fit for purpose, as it doesn’t examine all the attributes of a self-employed relationship as set down by case law. This weakness was highlighted by Mark Taylor in his test run of the predecessor of CEST, the Employment Status Service (ESS) tool, in March 2017.
The main problem with the CEST is that it omits to check whether a mutuality of obligation (MOO) is present in the relationship between the engager and the worker. The MOO is said to be present where there is a sustained obligation for an engager to provide regular work for the worker, and for the worker to work those hours and be obliged to accept the work offered.
The MOO is one of the two irreducible minimums that needs to be established to assert that an employment relationship exists, and therefore whether IR35 applies. However, the CEST (and the predecessor: ESS) assumes that a MOO is present in all relationships which are tested.
Mark Frampton, HMRC policy advisor on IR35, told an audience of NHS Trustees on 29 September 2017, that HMRC assumes MOO is present in all public sector engagements. This is why questions about the MOO, a vital indicator of employment status, have not been included in the CEST.
There is disagreement on whether the MOO does or does not exist in all public sector engagements. For example, where an NHS Trust can terminate the engagement immediately, which can be the case for many locum doctors and nurses, it could be said that no MOO exists. However, in the presentation by Frampton to NHS Trustees he said: “You are employed for a period of a shift or shifts in which you work and are paid for that. You are obliged to complete your shift yourself. All the ingredients of ‘mutuality of obligation’ necessary for a contract are present.”
Commenting on the NHS presentation, Dave Chaplin, CEO of ContractorCalculator said: “We have known all along that CEST does not align with case law and HMRC has, thus far, denied it. Now HMRC’s own head of policy has admitted that the tool makes assumptions that are factually incorrect and, more alarmingly, HMRC designed the tool to do so.”
HMRC admitted in the IR35 forum on 17 July that the CEST is still in public beta mode, but no further changes to CEST are envisaged. However, the minutes of the forum meeting confirm that CEST has wider application than public sector engagements. If CEST is changed in the future HMRC advised that the previous results from running CEST remain valid.
Around 450,000 relationships have been tested using CEST, which reaches a determination 85% of the time. If the CEST does not produce a result the engager is advised to contact the HMRC IR35 helpline or read the further guidance HMRC has published.
HMRC has indicated that more guidance concerning the operation of CEST will be published, and that it will set up a review process hotline, for when the worker disagrees with the CEST outcome. However, there is no timescale for the delivery of either of these developments.
Pressure on public sector
The NHS has been pressured to use CEST on all off-payroll engagements as HMRC has said it will only recognise assessments conducted via CEST. Dave Chaplin commented: “HMRC has appointed itself judge and jury on matters of employment status when it does not have the powers to do so, and is now leaving itself wide open for judicial review. They have now been caught contriving their own version of the law to wrongly catch locum doctors and nurses with its flawed status tool.”
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.