HMRC has made available an enhanced version of its Check Employment Status for Tax (CEST) tool and has also published new guidance in its Employment Status Manual (ESM11000) intended to provide engages and contractors with greater clarity on the factors used to make status determinations.

CEST is intended to help determine an individual’s employment status for tax and NIC purposes. It gives HMRC’s view of an individual’s employment status based on the information input into the tool. It can also be used to check if changes to the contractual or working arrangements alter the employment status.

There is no doubt that the enhanced CEST includes more and better questions than the previous version, including on:

• substitution: CEST uses a more sophisticated logic when asking questions on substitution;
• business on own account: questions are asked about how rather than just whether the contractor interacts with customers of the client, whether the contract is part of a wider series of contracts with the same client and the extent to which the contractor provides services to other clients; and
• provision of equipment: more detail is requested on the provision of equipment including specific questions on paying for materials, vehicles and other costs.

It also means that engagers using CEST will need to consult with the contractor more than hitherto to answer several of the questions.

A major shortcoming of the new tool is that it still does not cover mutuality of obligation (MOO) in an employment law sense, despite recent case law placing more emphasis on this test. Given the publicity given to MOO, this can only be a deliberate omission on the part of HMRC.

There is one error in the tool in that where the engager is in the private sector and CEST determines that the PSC contractor is in IR35, the tool output gives the wrong instructions as to who should operate PAYE. The results say that the organisation hiring the contractor needs to operate PAYE on their earnings. This instruction is correct currently only if the engager is in the public sector, or, under the prospective rules, if the engager is a large/medium business in the private sector.

Where the IR35 or off-payroll rules apply, an individual’s employment status will determine who is responsible for working out the tax and NIC due and subsequently paying it to HMRC.

HMRC says it will stand by the result given by CEST provided the information is accurate and it is used in accordance with HMRC’s guidance. CEST also provides the reasons as to why it reached its determination.

If there are material changes to the contract or working arrangements following using CEST to determine employment status, the information originally provided may no longer be accurate and HMRC will not stand by the original outcome. In these cases we recommend that the amended facts be input into CEST to enable it to determine afresh the individual’s employment status.

If you believe that the new rules for private sector organisations may affect your business after April 2020 and would like a ‘no-obligation’ review of your particular circumstances then email me on noel@guilfordaccounting.co.uk.

Noel Guilford