Determining worker status using HMRC’s CEST tool
From 6 April 2020 the off-payroll working rules are extended. The impact of the new rules was discussed in the December 2019 Newswire. Under the new rules, medium and large private sector organisations engaging workers providing their services through an intermediary, such as a personal service company, must determine the status of the worker if the services were provided direct to the end client rather than via the intermediary. If, ignoring the intermediary, the worker would be an employee, the off-payroll working rules apply.
HMRC’s Check Employment Status for Tax (CEST) tool can be used to fulfil the requirement to make a status determination.
The tool was updated in November 2019 in preparation for the extension of the off-payroll working rules. On 7 January 2020, the Government announced that they were reviewing the rules to facilitate a smooth implementation. As part of the review, which is due to report in mid-February, they will evaluate the effectiveness of the enhanced CEST tool.
The CEST tool is available on the Gov.uk website.
What is CEST?
CEST – Check Employment Status for Tax – is a tool which has been created by HMRC and which can be used to determine whether, for a particular contract, the off-payroll working rules apply. It can also be used to ascertain whether, for a particular piece of work, a worker is employed or self-employed.
If you are a medium or large private sector organisation which uses workers who provide their services through an intermediary, such as a personal service company, you can use CEST to meet your obligation to undertake a status determination under the off-payroll working rules as they apply from 6 April 2020. You must give the worker a copy of the determination, together with reasons for reaching it. Printing off the CEST decision will tick this box.
Although use of the CEST tool to make a status determination is not compulsory, its use is advised, not least because HMRC will accept by the decision reached by the tool as long as the information entered is correct.
The tool works by asking a series of questions, the answers to which are used to determine the status of the worker.
The CEST tool can be used anonymously. However, it should be noted that there is no facility to save the answers and return to the task later. If the tool is closed before the determination is complete, the answers will be lost. It will also time out if it is left idle for 15 minutes. It is therefore advisable to ensure that you have all the relevant information to hand before starting the determination.
The starting point is the contract of employment. The tool assumes that a contract is in place – this highlights the significance of mutuality of obligation as without mutuality of obligation there can be no contract.
To use the CEST tool, you will need the following information:
- details of the contract;
- the responsibilities of the worker;
- who decides what work needs doing and when and where;
- how the worker is paid;
- whether the engagement includes any corporate benefits or reimbursement of expenses.
It is then simply a case of working through the question and selecting the best match answer from the available options.
Once all the questions have been answered, the user is given the option of reviewing the answers selected before the decision is given.
The CEST tool will use the information provided in response to the questions to give one of the following outcomes:
- off-payroll working rules (IR35) do not apply;
- off-payroll working rules (IR35) apply;
- unable to make a determination (for whether the off-payroll working rules apply);
- self-employed for tax purposes for this work;
- employed for tax purposes for this work;
- unable to make a determination (for employed or self-employed for tax purposes).
It will also set out the reasons for the decision reached.
Use of the tool by a worker
If you are a worker providing your services through a personal service company or other intermediary, you can also use the CEST tool to check your status. From 6 April 2020 onwards, you can use it to check a determination given to you be an end client that is a medium or large private sector organisation; and if you disagree with the determination given, the CEST decision can be used as the basis for a challenge.
Prior to 6 April 2020 and on or after that date where the end client is small private sector organisation, you can use the CEST tool to see if you need to operate the IR35 rules.
HMRC produce detailed guidance on using the CEST tool, which can be found in their Employment Status Manual. Check this out before using the CEST tool.
The whole area of IR35 and employment status is an area of constantly changing legislation and case law. Remember we’re always here to help you to safely navigate your way through the employment tax minefield.