HMRC has updated their Check Employment Status for Tax (CEST) tool

HMRC has recently released an update to its Check Employment Status for Tax (CEST) tool, although the changes are mostly focused on user experience, rather than its core purpose.

So what is CEST?

CEST is a digital tool which HMRC provides, used by hiring organisations, agencies, intermediaries and contractors, designed to help determine whether a worker should, or should not, be classed as employed for tax purposes.  The distinction is important. 

The CEST tool is useful for:

• Determining whether IR35 applies. This is a set of tax rules designed to prevent workers from avoiding employment taxes by operating through an intermediary, such as personal service company or partnership, when they are actually working like an employee.  If a worker is found to be "inside IR35", income tax and National Insurance is accounted for like they were employed.

• When hiring individuals, especially contractors or freelancers, it helps determine whether they should be taxed as an employee or self-employed for that specific engagement.

CEST asks a series of questions about the nature of the engagement, such as:

Control - How much supervision the engager operates over the worker.

Substitution - Whether the worker can send someone else to do the work.

Mutuality of Obligation - Whether the engager has to offer work and the worker has to accept it.

Financial Risk - Whether the worker is exposed to any financial risk

Integration - Assessing to what extent the worker operates and fits within the engager’s business.

So what has changed in the recent update?

The amendment has introduced a more streamlined and user-friendly interface with added integrated guidance from HMRC’s Employment Status Manual.  It is now easier for users to check and edit their answers during the process.

However, it is important to note that the core decision-making logic of the tool has not been updated to reflect recent tax court status decisions, leaving it with limitations.

HMRC says they will stand by the outcome of the tool, provided it is used accurately and honestly. They go on to say that any attempts to manipulate answers intended to achieve a desired result could be seen as deliberate non-compliance, which would then attract appropriate penalties.

What Does This Mean for You?

Engaging contractors - Please continue to exercise care when determining a worker’s tax status.  The CEST tool should not be relied upon in isolation, especially if the result feels to be at all unclear or contentious.

A contractor or freelancer - CEST can be used as a guide.  However, please do speak to us if your working practices have changed or if you feel your IR35 status may be borderline.

An agency or intermediary - Ensure your use of the tool aligns with current best practices and that records of assessments are retained.  Please obtain sufficient input from both the client and contractor to run through the CEST.  If you have any doubts about the accuracy of the result, please do seek further advice.

Final Thoughts

Although the latest CEST update might have enhanced users’ experiences, it does not address the underlying concerns about its legal reliability. For anyone affected by employment status concerns, we recommend using CEST as just one aspect of a broader status review and seeking professional advice where appropriate.

If you would like to discuss how the CEST update could affect your business or contractor arrangements, please get in touch with us.  We are here to help.

Further reading and the CEST tool can be found here.