A number of improvements are required for the CEST (Check Employment Status for Tax) tool of HMRC before it comes into effect in the private sector, according to CIOT (Chartered Institute of Taxation).

The tax authority highlighted the taxman’s struggles to rectify the fundamental flaws of CEST and how it causes protracted disputes and unpredictability for the tax status between the workers and the business.

Colin Ben-Nathan, who heads the employment taxes sub-committee of CIOT, explained that if the responsibility is assigned to businesses for making the right decisions on the implementation of the off-payroll rules then it is imperative that CEST is considerably enhanced.

Regarding the recently-closed off-payroll consultation of HMRC, CIOT was uncertain about the failure of CEST and how it can process each of the mandatory employment case law factors, prior to generating an outcome for the IR35 status. As a consequence of this, CEST is prone to flawed determinations of these statuses.

Ben-Nathan stated that till CEST factors in MOO (mutuality of obligations), contractual benefits (maternity/paternity pay, holiday pay), multiple engagements, and whether or not an individual is selected to be in business on their own volition, it is difficult to expect consistently good results from CEST. According to Ben-Nathan, it is necessary or else disputes will continue to emerge between contractors and businesses because of lack of trust in CEST. At the same time, these stakeholders have to put in considerable effort and time to resolve these cases in the court.

These comments from CIOT are going to build more pressure on the HMRC, especially after open letters have been published against HMRC for their refusal to accept the shortcomings of CEST despite the following.

  • Tribunal judges continuously rejecting CEST assessments.
  • Notable evidence regarding the failings of CEST.
  • The failure of HMRC for providing authentic evidence that can indicate the accuracy of CEST.
  • A worryingly high figure of contractors that fall into the scope of IR35.

Ben-Nathan further elaborated that “HMRC should no longer make claims as to CEST’s accuracy without providing cast-iron proof. That means publishing a full set of testing output for every single IR35 court case to date, with a list of the answers put into CEST for said cases. This will enable rigorous independent verification to be carried out, which is absolutely essential for a system that will affect the lives of 600,000 tax payers.”


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