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A spotlight casting down on ice | AccountingWEB | CEST tool update spotlights more IR35 cases
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CEST tool update spotlights more IR35 cases

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Rebecca Seeley Harris explores the recent updates to HMRC's Check Employment Status for Tax tool, which features 12 new employment status cases, and highlights its role in determining IR35 and self-employment status amid evolving case law.

9th Feb 2024
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HMRC’s Check Employment Status for Tax (CEST) tool has recently been moved onto the Ocelot platform, in October 2023. This is apparently to enable the tool to be more agile so case law can be changed more quickly when it comes through.

The proof is in the pudding, as they say. So last week HMRC updated the tool with 12 more employment status cases. The vast majority were IR35 cases, with several being self-employment cases, you can see the split below.

No change in the logic

There has been no change in the logic and, so far, none of the questions have been altered or added to. The last major update to the questioning was in November 2019, when questions regarding intellectual property were added, amongst others.

HMRC reported that it has conducted a thorough review to ensure consistency of outputs with the existing CEST service, this included re-testing the cases published below. 

HMRC also stated that: “Whilst there is no change in logic within CEST and users will not receive alternative outcomes this platform move is to allow us to be reactive if a change in logic or user journey is needed in future.” 

36 cases, up from 24

That may well happen soon as the current list includes the Atholl House (Kaye Adams) case but, from the Court of Appeal. As we know, this case has now been heard at the first tier tribunal and the tribunal held that Kaye Adams (Atholl House) was outside of IR35

There are also three other cases of importance which have all been heard but, the judgment is pending. Those cases are RALC Consulting Ltd in the UT where HMRC has appealed, McCann Media in the UT where Neil McCann has appealed, BBL Ltd (Adrian Chiles) in the UT which HMRC has appealed and Professional Game Match Officials Ltd (PGMOL) in the Supreme Court which HMRC has appealed.

There are now 36 cases, of the original 24 cases, 22 have been included and two dropped:

Original cases CEST Appeal outcome
Alternative Book Company IR35 applies IR35 applies
Castle Construction UTD Self-employed
Datagate Services IR35 does not apply IR35 does not apply
Dragonfly Consulting IR35 applies IR35 applies
ECR Consulting Ltd IR35 does not apply IR35 does not apply
First Word Software IR35 does not apply IR35 does not apply
FS Consulting Ltd IR35 applies IR35 applies
Future Online Ltd IR35 applies IR35 applies
Island Consulting IR35 applies IR35 applies
JL Window and Door Services Self-employed Self-employed
Larkstar Data Ltd IR35 applies IR35 does not apply
Lime IT Ltd IR35 does not apply IR35 does not apply
MAL Scaffolding Self-employed Self-employed
Marlen Ltd IR35 does not apply IR35 does not apply
MBF Design Services Ltd IR35 does not apply IR35 does not apply
MKM Computing IR35 applies IR35 applies
Novasoft Ltd IR35 applies IR35 does not apply
Parade Park Hotel Ltd Self-employed Self-employed
Sherburn Aero Club IR35 does not apply IR35 does not apply
Tilbury Consulting UTD IR35 does not apply
Usetech Ltd IR35 applies IR35 applies
Weightwatchers IR35 applies IR35 applies
Dropped cases CEST Appeal
Netherland Ltd Employed Employed
Primary Path Ltd Self-employed Self-employed

New cases

The 12 cases that have been added are:

New Cases CEST Appeal outcome
Alan Parry Productions Ltd (FTT) IR35 applies IR35 applies
Abatel Ltd UTD IR35 does not apply
Armitage Technical Design Services Ltd IR35 does not apply IR35 does not apply
Atholl House Ltd (CoA) IR35 applies IR35 applies
Canal Street Productions IR35 applies IR35 does not apply
Christa Ackroyd Media Ltd (UT) IR35 applies IR35 applies
Jensal Software Ltd IR35 does not apply IR35 does not apply
JLJ Services IR35 applies IR35 applies
Kickabout Productions Ltd (CoA) IR35 applies IR35 applies
Little Piece of Paradise Ltd IR35 applies IR35 applies
MDCM Ltd IR35 does not apply IR35 does not apply
Northern Lights Solutions Ltd (UT) IR35 applies IR35 applies
PAYA (FTT) IR35 applies IR35 applies
Red White and Green (UT) IR35 applies IR35 applies

The new cases of which

  • 15 cases were held to be IR35 does not apply
  • 4 cases were self-employed
  • 17 cases were held to be IR35 applies

In six of the 36 cases, CEST returned a different decision which HMRC did not appeal. HMRC takes many factors into account when deciding whether to appeal FTT judgments. Many of these cases are FTT and, of course, being an FTT judgment, it does not set a precedent. There is, however, the Principle of Comity. This means that unless there is a reason not to, the judge of another court should still take that case into account. 

With regards to IR35, only a handful of cases have reached the UT and only two have reached the Court of Appeal.

The original set of tested case law was from September 2018. A slightly different set of case law was tested against CEST in 2021 but, some of those cases, including George Mantides Ltd and PGMOL are not present on the current list as they are also awaiting judgment.

According to HMRC, these cases were tested against the Judge’s findings of fact from the published decisions. Where a specific finding of fact had not been made to allow an answer to a question a best approximation was made from the submissions of both parties.

Where HMRC has lost a case at the FTT, it has been because new evidence came to light or the judge weighed the facts differently. The judges have confirmed that the factors that HMRC takes into consideration when determining status are correct.

There is further information on the CEST tool in HMRC’s Employment Status Manual ESM11005.

Replies (11)

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boxfile
By spilly
09th Feb 2024 16:08

Rebecca, the saying is actually that the proof of the pudding is in the eating. Not that it makes any difference to how indigestible using the CEST tool is.

Thanks (0)
the sea otter
By memyself-eye
09th Feb 2024 17:59

IR35 rumbles on and on and on.
Beam me up Scotty!

Thanks (2)
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By FactChecker
09th Feb 2024 18:36

According to zooamerica.com (other reference sources are available) an Ocelot is:
"Shy and elusive, their spotted coats make them very well camouflaged for blending into their surroundings, and they seem to mysteriously disappear into the shadows of their dense habitat"

So at last HMRC have put CEST where it belongs ... nothing to do with agility, but everything to do with deniability ('well I'm sure I saw it somewhere round here sometime')!

Thanks (3)
Replying to FactChecker:
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By FactChecker
09th Feb 2024 18:42

On a more serious note, HMRC used to say that they'd never take you to court if you could show that CEST said 'IR35 does not apply' (albeit with the ginormous get-out clause of 'so long as we believe you answered every question truthfully & accurately' - so judge & jury syndrome to the fore again).

As all the 'in bold' results above are the other way round (CEST says in, appeal says not in) ... have HMRC changed their mind (for what little it's worth)?
.

ALSO is there any justification for:
"According to HMRC, these cases were tested against the Judge’s findings of fact from the published decisions.
Where HMRC has lost a case at the FTT, it has been because new evidence came to light or the judge weighed the facts differently.
The judges have confirmed that the factors that HMRC takes into consideration when determining status are correct."

That's a very brave set of claims - with which many judges may not be happy?

Thanks (2)
Replying to FactChecker:
Rebecca Seeley Harris
By Rebecca Seeley Harris
11th Feb 2024 23:05

I'm not quite sure what you mean about the cases in bold. They are the correct way round. CEST said they were inside and the appeal said these cases were self-employed or IR35 does not apply and HMRC did not appeal them.

Also, the quotes were taken direct from the HMRC material so, if it is a wild claim it is from them not me.

Thanks (0)
Replying to seeleyharris:
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By FactChecker
12th Feb 2024 10:19

Rebecca, you seem to discern criticism where none was intended ... I must learn to tidy my English for avoidable ambiguity.

1. I never said that the CEST cases were the "wrong" way round - merely that they were the inverse of the more interesting cases which, if they exist, would show CEST saying outside but a subsequent case (if brought by HMRC) saying 'inside IR35'!
My point being to question whether anything had changed from HMRC's previous stance that they'd never take you to court if you could show that CEST said 'IR35 does not apply'?

2. Similarly, I never attributed the quotes in the 2nd part of my post to the author (you) ... I assumed (correctly) that they emanated direct from HMRC, whose style showed clearly.
Which is why I was happy to accuse (them not you) of being brave with their claims - I might have said cavalier - particularly that "The judges have confirmed that the factors that HMRC takes into consideration when determining status are correct", which is news to me.

FWIW the later post from Dave Chaplin seems to endorse, indirectly, similar concerns.

Thanks (2)
Replying to seeleyharris:
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By Jabba the Hut
12th Feb 2024 14:56

The worrying thing is it is quite a high proportion where HMRC said IR35 applied but it didn't, high enough to question the validity of CEST.
The run on from that is how much tax payers money has been wasted trying to pin IR35 on businesses, money that could be better spent devising a sensible way to equalise employed and self employed tax.
Of course, if Gordon "Pension Thief" Brown hadn't hiked ER's NI from 10% to 12.8%, which coupled with his cynical 0% CT rate we would never be in this mess.

Thanks (0)
Replying to Jabba the Hut:
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By johnjenkins
12th Feb 2024 15:17

IR35 should never have been allowed to get on the statute books. It would appear that to get the Government to do anything constructive it needs a TV show. Even then they are dragging their heels.

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Dave Chaplin
By Dave Chaplin
12th Feb 2024 08:10

The CEST tool has not been updated since Nov 2019. The list is merely HMRC's testing of it's own tool, without publishing the list of inputs and outputs. Fortunately, I regularly FOI this data, and have detailed copies of all the full test data. I'll be revealing how the testing is woefully under par in due course, as part of my CEST FOI Files revelations. That said, the CEST source code is online, and the tool is still doing single-factor determinations for Outside IR35 determinations, which is contrary to law. HMRC's test results rely on triggering a negation of control, which based on the CEST questions, are also contrary to how case inspectors run cases, and how HMRC Counsel argue control in tax tribunals. CEST does not align with the law. Never has.

Thanks (4)
Replying to davechaplin:
Rebecca Seeley Harris
By Rebecca Seeley Harris
12th Feb 2024 18:00

As I have made quite clear, Dave Chaplin, the logic has not been changed but, the case law that the tool is tested against has been. It's divisive and misleading to say that it has not been updated when it has been. I understand it is in your best interests to discredit the tool but, it's getting a bit repetitive.

Thanks (2)
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By johnjenkins
12th Feb 2024 09:28

There is only one answer to the IR35 farce and that is for everybody on PAYE to go self-employed. Now that would really mess up HMRC and give them a bit of their own medicine.

Thanks (1)