HMRC has released an updated version of its CEST tool ahead of next April’s reforms. The previous tool was heavily criticised for failing to take key status tests such as ‘MOO’ and ‘Being in Business’ into consideration when determining if IR35 applied. There was also insufficient guidance notes for cases that were more complex, meaning that the tool often failed to accurately reflect individual circumstances.
A number of IR35 tribunals have proven that the tool is flawed, while several companies that have relied on CEST to make determinations for their workforce have found themselves in hot water. The problem is that HMRC say they will stand by the tool’s verdict when the correct answers are given. However, insufficient guidance means that HMRC can make largely subjective decisions on what they consider to be ‘correct’.
With just 20 weeks to go before the new rules come into force, many engagers are planning to use CEST ahead of the reforms. This will allow them time to establish whether it works effectively for them. However, the tool is of limited use without the final legislation and guidance notes that would allow engagers to finalise their IR35 processes. This has seen many businesses impose a temporary ban on limited company contractors in order to mitigate risk.
Industry experts are saying that businesses shouldn’t rely on the new CEST tool to deliver an accurate verdict. The tool’s questions cover worker’s duties, substitution, working arrangements, financial risk and contracts. However, despite being tweaked, the wording of the questions allows room for misinterpretation, while key tests such as MOO are still not taken into account.
Accurate input of data is still necessary for the CEST tool to function as required, and without adequate guidance notes this poses a risk for engagers. Industry specific notes are needed for sectors where IR35 determination has proven particularly problematic, such as the entertainment sector. For example, the ‘Film, Television and Production Industry Guidance Notes’ haven’t been updated since 2012.
Experts are warning both companies and individuals not to rely on the tool alone. Independent advice and workforce audits are advised to reduce risk. With the key political parties all promising an IR35 review in their election agendas, an umbrella company is also a possible solution in this interim period of uncertainty. Using a PAYE umbrella as a payroll option will automatically remove the risk of IR35 and the necessity for making status determinations.
This content has been supplied by IR35 Guru.
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