Continuing Concerns over HMRC's CEST Tool

It’s time The Treasury listened to concerns over its IR35 tool

On its release in March 2017 – just weeks before public sector IR35 reform was introduced – the UK contracting community voiced huge concerns about the reliability of HMRC’s CEST Tool, which was built to assist end engagers with the IR35 decision-making process.

Almost a year on, these fears will no doubt remain, despite HMRC’s insistence that the tool is capable of making accurate IR35 assessments in the public sector and is therefore serving its purpose.

And the Government’s quite blinkered view on the quality of its own technology was again compounded last week, as The Financial Secretary to The Treasury defended it.

In a question from The SNP’s Martyn Day, HMRC’s Mel Stride was rightly pressed on whether he will prioritise a much needed review of CEST.

Without acknowledging any its obvious failings – which in many IR35 expert’s eyes includes an over-reliance on the right of substitution being present – he stood up for the controversial tool, stating:

“CEST service has been tested for accuracy against known case law and settled cases. It provides an answer for 85 percent of uses, and HMRC will stand by the result given unless a compliance check finds the information provided isn’t accurate.”

But contractors have heard this standard response before, and many will find it just as unsatisfactory as the previous statements made by Mel Stride and HMRC.

After all, how long might a public sector contractor be made to work inside the rules before an IR35 compliance check proves the CEST tool to have made an inaccurate decision?

Given contractors are required to pay similar taxes to employees when working inside IR35 (but without receiving any employment rights), inaccurate decisions could put a huge dent in their earnings.

From what we understand, HMRC only started policing public sector reform recently, meaning that it could be months before incorrect decisions are reversed following an IR35 investigation. And frankly, it’s difficult to imagine HMRC advising a public sector client that a contractor belongs outside IR35 – a move which would see it lose out on revenue.

While it’s of no real surprise that HMRC has once again staunchly backed its own IR35 solution, it will be of growing frustration to our sector’s leading voices that the Government continues to claim victory in last year’s shambolic public sector reform.

And it is HMRC’s confidence in its own success that has led Mr Stride and his employers to place such trust in CEST – a controversial piece of technology which has worryingly been used hundreds of thousands of times since its arrival.

Expanding on his defence of CEST, Mr Stride continued: 

“Feedback from customers show the CEST service is helping to ensure that, for most situations, decisions on whether a worker is in scope of the intermediaries legislation (know as IR35) are simple and quick.”

The onus placed on the ease and speed in which CEST makes IR35 decisions is another concern. The IR35 legislation itself is complex – something which the Government themselves clearly realise – so how can potentially 2million contractors and their engagers have confidence in the tool to produce reliable results quickly and on a large scale? Quite simply, they can’t.

Leaving a contractor’s IR35 status in the hands of CEST is a risk. So to have the best possible chance of making accurate decisions, public sector bodies should look to assess each contractor’s working arrangement individually and engage the opinion of an experienced and trusted IR35 specialist like Qdos.

Mr Stride concluded his argument by at least promising to refine the tool. 

“HMRC will continue to work with customers to enhance the service, and holds tax guidance on employment status under review.”

Some might consider this progress, but HMRC still seems to be missing the point; contractors need to be involved in helping improve the tool regardless of whether it is their client which ultimately makes the decision.

If HMRC is serious about making CEST more reliable and improve its poor reputation among the UK’s independent workforce, it surely has to allow contractors to put forward their case for working outside IR35 in the public sector too.