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HMRC updates employment status test tool

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The UK tax authority has released CEST 2.0, the latest iteration of its controversial IR35 status determination tool, with a new platform and more features to come in its next round of updates.

5th Oct 2023
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HMRC has confirmed to AccountingWEB that its Check Employment Status for Tax (CEST) tool moved onto a new platform on Monday.

The in-house platform known as Ocelot forms part of the tool’s upgrade to CEST 2.0. According to HMRC, the Ocelot platform is more flexible and will allow the tax authority to amend the tool more efficiently if required. It will also allow HMRC to analyse data and “customer journeys”, from the tool to “continuously improve the customer experience”.

In phase one of the CEST 2.0 update, there are three main differences to the tool.

  1. The user can now review their answers after each section rather than at the end of the process. According to HMRC, this will help CEST users reflect on their answers, access guidance at earlier stages and reduce the risk of receiving an “unable to determine” outcome.
  2. The Employment Status Manual guidance has been embedded into the tool itself. This removes the need for the user to visit web pages outside the tool and reduces the risk of the user being timed out of the process. HMRC also states that this change guarantees the customer is directed to the correct guidance for a particular question.
  3. To help the user understand why they have received a particular CEST determination, the tool will tell them the conclusion it has reached from the answers they have provided for each question or section.

During phase one of the CEST update, the questions asked will remain the same as the previous iteration, as will the tool’s logic and the Employment Status Manual.

Writing in Contractor UK, employment status expert Rebecca Seeley Harris stated that one reason why any question set changes may have been delayed until phase two of CEST 2.0 is that HMRC is awaiting the outcome of the Supreme Court’s judgment on the PGMOL case

This judgment is likely to provide a precedent on how to interpret mutuality of obligations and if the decision goes against HMRC, then the department will presumably have to change the CEST logic.

Curiously, the migration doesn’t feature in the CEST update notes, which still show the tool was last updated in 4 May 2021.

Changes welcome, but phase 2 will be critical

Seeley Harris told AccountingWEB she welcomed the improvements HMRC is making to CEST.

“I am told that the new Ocelot platform is more responsive to changes which will hopefully mean that HMRC can make changes as and when they happen.

“The more critical phase will be phase 2 where HMRC will look at the questioning. This I am reliably told is in an effort to reduce the unable to determine percentage.” According to figures unearthed by Seeley Harris, the tool’s output of “unable to determine”, increased to 21% between November 2019 and November 2021.

“A lot of clients rely on CEST, although I would never advise them to use CEST in isolation,” continued Seeley Harris. “It should always be part of a wider employment status assessment.”

What is CEST and why is it controversial?

Launched by HMRC in February 2017, CEST is built as a free online tool to help firms make status determinations in relation to the off-payroll working legislation more commonly known as IR35.

While the tool can be a useful resource for making decisions about worker classification, it has proved controversial amongst agents and end users for a variety of reasons.

As stated by former Financial Secretary to the Treasury Lucy Frazer, it is not compulsory to use CEST to reach a status determination. The tool does not have legal authority and therefore should not be considered as a final word on a worker’s employment status.

At least three government bodies have been fined or required to pay large tax bills after failing to correctly assess the employment status of their contractors, with two – the Department of Work and Pensions (DWP) and Her Majesty’s Courts and Tribunal Service (HMCTS) – reportedly using CEST as their sole method of assessing contractor status at that time.

CEST’s critics also point to the fact that its accuracy has not been proven and expressed concern that it was misaligned with current case law. 

In a forensic teardown of the tool, compliance software IR35 Shield stated that CEST’s “single factor” decision logic based on triggering necessity conditions leads to carelessly produced determinations, which can breach the statutory requirement to take reasonable care.

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By johnjenkins
05th Oct 2023 13:31

CEST2, is that like HS2 going nowhere fast?

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