What does CEST’s ‘damning’ usage data tell us?

IR35, Off Payroll Reform, Tax

12 month CEST usage data shows tool cannot return a result 19% of the time

It has come to light that HMRC’s IR35 tool, CEST, was unable to provide an answer regarding a contractor’s IR35 status over 188,000 times in the past year. 

Following a Freedom of Information request, the Government published the latest usage data from its Check Employment Status for Tax (CEST) tool, which was introduced in 2017 to help public sector bodies determine the IR35 status of contractors.  

With IR35 reform in the private sector to be rolled out on 6th April 2021, these statistics cast huge doubt over the effectiveness of the tool, which HMRC continues to encourage businesses to rely on. 

The usage data shows that CEST was completed 975,416 times between November 2019 and November 2020 by contractors, end clients and recruitment agencies. 

Of the cases put through CEST, 52% (505,598) were viewed as outside IR35 engagements and 29% (281,099) as inside. However, more alarmingly, 19% (188,719) of the time, HMRC’s flawed technology could not return a result, leaving a staggering number of users in limbo. 

But what does the most recent CEST usage data tell us? And what can businesses – whether end-clients or recruitment agencies – take from this as they prepare for IR35 reform? 

 

Unanswered IR35 decisions leave users guessing

The astonishing number of indeterminate decisions delivered by CEST in the previous 12 months will have left contractors and businesses guessing, unsure of which IR35 status should be applied. 

Following an inconclusive answer, HMRC is not proactive in the support which is then offered either. When CEST cannot return a decision, users are asked to check to make sure the information they have provided is correct, referred to the notoriously complex Employment Status Manual and given a phone number and email address to contact for further assistance. 

Even if we were to assume HMRC has the resources to cope with thousands of enquiries for help specific to one engagement – let alone 188,000 of them – by not providing an answer 19% of the time, CEST could prevent a business from being ready for IR35 reform by 6th April. 

In contrast, an IR35 status review carried out by Qdos delivers a result every time – in 100% of cases. This offers businesses confidence and clarity regarding IR35 compliance, allowing organisations to either place or engage contractors quickly and under the correct status. 

 

Businesses account for over 500,000 uses

There are two ways to look at the fact that 536,418 (55%) of CEST’s uses were made by ‘hirers’, which are also referred to as end clients. 

Firstly, it shows that many end clients are at least preparing for IR35 reform in some capacity, even if they are using CEST. We can be confident of this given the number of CEST uses made by firms in March 2020 (the month before the anticipated roll out of reform in April 2020) spiked at 142,368. 

However, the half a million times CEST was used by end clients does also demonstrate that far too many firms are placing their trust in the tool, which poses a significant risk to IR35 compliance. 

For more on why Qdos advises businesses to use anything but just CEST to manage IR35 reform, please click here.

 

Recruiters used CEST just 16,000 times 

While contractors made up 43% (422,139) of CEST users in the past year, just 2% (16,859) of the 975,416 engagements put through the tool were carried out by recruiters. 

Again, this could mean one of two things – that recruiters do not trust CEST and choose to engage the support of third-party IR35 specialists, such as Qdos. Or that last year, in the lead up to the expected rollout of IR35 reform in April 2020, agencies rarely assessed the IR35 status of contractors they place. This is despite the fact that they will often be liable for IR35 as the fee-payer in the supply chain. 

Either way, in the coming months it’s crucial that recruiters are sure that contractors placed in medium and large businesses work under the correct IR35 status. After all, should HMRC find otherwise, fee-paying recruiters will face retrospective tax payments plus interest and in time, possibly even penalties too. 

To summarise, and reflect again on what our CEO Seb Maley described to The Register as ‘damning’ usage data, CEST’s indecisiveness is a big cause for concern. Along with the fact that it does not align with IR35 case law, it has been dismissed in numerous court cases, and given there’s no guarantee HMRC will stand by a result provided by the tool, in the coming months businesses are advised to consider alternative ways to assess the IR35 status of contractors. 

 

Qdos is supporting over 2,200 businesses, helping them navigate changes to the off-payroll working rules. The Qdos Status Review facility provides a range of expert IR35 solutions, including IR35 status reviews and IR35 insurance, to allow businesses to compliantly place and engage contract workers. 

For more information, please get in touch on info@qdoscommercialservices.com or 0116 478 3390.

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