HMRC’s Check Employment Status for Tax (CEST) tool has been controversial since its introduction. Now, even an ex-HRMC tax inspector is calling into question the reliability of the tool.
According to Philp Manley, a tax partner at Dow Schofield Watts and a former HMRC tax inspector, the CEST tool does not meet the “reasonable care” requirement laid out within the Off-Payroll legislation, and as result, it cannot provide users with tax certainty.
Manley set out his conclusions on CEST in a white paper produced with ‘The Law Place and ContractorCalculator’.
He concluded: “Unless HMRC can disprove the substantial evidence demonstrating CEST’s shortcomings, then it’s clear that CEST is not fit for purpose.”
Manley based his conclusions on HMRC guidance and his own analysis of case law. He went on to warn contractors that CEST can offer no protection from the tax risks imposed by the Off-Payroll legislation. Unfortunately for many contractors, they have discovered this the hard way by having their status assessments challenged by HMRC.
The requirement that clients take “reasonable care” in assessing the employment status of their contractors came to the Off-Payroll legislation as a late amendment. The addition of the clause moved the tax liability to the client from the fee-payer if the client did not take “reasonable care” when deciding a contractor was within IR35.
Those who use CEST could face backdated tax, interest and penalties if their assessment is incorrect, and worryingly, HMRC is already challenging IR35 statuses determined through CEST.