It's widely known that HMRC’s Check Employment Status for Tax (CEST) tool isn't going to deliver fair treatment for contractors when it comes to status determinations and is heavily biased in HMRC's favour. Some firms are still using it, with many discovering that it's telling them, unsurprisingly, that the vast majority of their contractors are caught by IR35.

The latest version of CEST has not materially changed. They have added one extra “room” relating to being in business on one’s own account – but for most knowledge based contractors this makes no difference.

Whilst CEST version 2 asks all of their short list of questions, when you look under the bonnet, you can see that it still only produces an “IR35 does not apply” result based on isolated areas of law. This is worse than before, because it implies balance has been used, when it hasn’t, leading the user into a false sense of security, particularly for outside IR35 determinations.

For the classic knowledge based contractor, it will only hand out “IR35 does not apply” if (a) there is a valid substitution clause, or (b) if there is barely any control at all. A substitution clause alone won’t hold up in court, and the high bar set for control is entirely unrealistic and does not align with the law.

If you are a freelance contractor and believe that you are being unfairly treated the following letter may be a first response to your engager. (This is, of course, dependent on your actual status being outside IR35. If you are inside IR35 then you should have paid your IR35 taxes in previous years).

This letter has kindly been provided by Contractor Calculator https://www.contractorcalculator.co.uk/ who also provide a free IR35 check on their website.

Challenging a CEST Determination - letter to engager

“Dear (insert client name),

Thank you for your determination.

Sorry, but I do not recognise CEST as a fit-for-purpose mechanism for determining employment status. This is widely known in the market, and your advisors and lawyers will surely have read the compelling evidence that supports this view, which includes:

1. CEST does not consider mutuality of obligation, which I believe does not feature in my contract.
2. CEST makes determinations based on isolated areas of law, rather than considering the bigger picture, as per the requirements under Hall v Lorimer Lorimer [1993] EWCA Civ 25
3. CEST reaches the wrong decision for actual IR35 court cases that have been successfully appealed by tax payers.
4. HMRC have not published any detailed evidence to prove that CEST is accurate

For these reasons alone, it is clear that CEST does not adhere to the requirements for reasonable care.

Therefore, [insert client name] have not met the requirements of the legislation.

This means that the tax liability still sits with your firm, as fee-payer, and that you have no legal right to deduct monies from the gross fees you pay to my limited company. Having taken advice I’m of the view that my contract is outside IR35, and have attached evidence to demonstrate this.”

Your evidence will normally be in the form of a copy of your contract, highlighting the areas that the CEST tool has not adequately considered, a letter from your accountant or recent case law. If you need advice or assistance please book a call with me at www.calendly.com/noelguilford or email noel@guilfordaccounting.co.uk.

Noel Guilford