HMRC tool for employment status misleading

According to a recent report, a 14-month investigation into HM Revenue & Custom’s (HMRC) Check Employment Status Tool (CEST) is “routinely” misleading the self-employed, coming to “the wrong conclusion in almost half of cases”.

HMRC released its IR35 tool CEST in March 2017 following a change to taxation rules for self-employed contractors. It now places reliance on CEST to help it administer those rules. However, despite its importance, it seems that the CEST tool does not explicitly look into mutuality of obligation when determining whether someone’s employment status. HMRC considered that, for any contract to exist between an employer and worker, mutuality of obligation will already need to be established.   This mutuality of obligation is one of the fundamental factors that needs to be taken into consideration when applying the legilsation, so the fact that it is omitted through CEST, demonstrates that it is limited.

People completing CEST are asked around 16 questions, and it is thought that, no matter how good the tool is, it can never have the same level of detail as a full review by HMRC or tribunal assessment where the relationship between both parties is scrutinised.

With the number of contractors and others working on a self-employed basis in the UK sitting at close to five million, further change are required.

The earliest date possible for extending the current rules to the private is April 2019, but given these issues it seems that April 2020 is now far more likely, with a possible phased approach based on the size of business or payment.