CEST stands for ‘Check Employment Status for Tax’. It is a tool designed by HMRC to determine whether a particular engagement is inside or outside of IR35. It uses multiple-choice questions to determine IR35 status and produces a summary of your answers alongside an explanation for the determination.
The original CEST tool was created in March 2017 yet due to widespread discontent with the tool, was updated in November 2019. Despite showcasing some improvements with the tool, there is still a long way to go.
The updated version of CEST includes additional questions dependent on previous answers and can be completed by one of the following three people: the worker (contractor), the end client, or the agency paying the worker.
IR35 is an incredibly complex issue, this is evident from a quick glance at the reams of case law available at our fingertips. As such, it should not be approached with a simple ‘yes/no’ questionnaire.
IR35 status must be viewed holistically looking at the full picture. With HMRC treating it as simply black and white, there is a large grey area in between that is not being accounted for, and which does not allow for the many nuances present with different industries.
By reducing IR35 to a series of multiple-choice questions, HMRC are failing to collect vital information that could inform the overall outcome. Each case should be treated separately, and as such, you should be given room to provide more specific answers that could have a substantial impact upon your IR35 status. It is preferable to see any multiple-choice question boxes paired with a commentary box for additional information, this way the full context of an engagement can be taken into account.
In the case of CAM Ltd (Christa Ackroyd) v HMRC, the Judge raised that IR35 should not be determined using a ‘mechanistic’ or ‘check list’ approach, completely contradicting HMRC’s CEST tool.
CEST was supposedly designed with your everyday user in mind. It was created to be used by those who have little to no knowledge of IR35 and its associated case law. Despite this, the questions provided throughout the questionnaire lack the support necessary for the average person answering to understand what is required of them.
Many of the questions are also framed in a way which can easily be misinterpreted and/or encourage certain answers.
An example of this is substitution, which is one of the most pivotal factors when determining IR35 status. The key question on CEST itself asks whether the client has the right to reject a substitute, with a binary yes/no answer. In the explanatory note it states: “This can include rejecting a substitute even if they are equally qualified, and meet your interviewing, vetting and security clearance procedures”.
However, in the CEST section within the Employment Status Manual it states: “Where the hirer can only reject a substitute upon grounds that they are not qualified to perform the work, this would fall within the ‘No’ category for CEST provided it would be practical and plausible for the worker to send a substitute.”
The Employment Status Manual provides guidance for HMRC staff and is not linked to from CEST, but the clarification above would have a significant impact on a user’s interpretation and subsequent answer to one of the most important questions. Such clarification can be found here.
With many taking to forums to ask for advice or some even seeking an ‘easy way to pass CEST’. It is clear that more support is necessary for those with a more basic level of IR35 knowledge (those who the CEST tool was created for).
The vital status test of mutuality of obligation has been a sticking point for CEST ever since its inception in 2017.
First, we must answer, what is mutuality of obligation?
Put simply, mutuality of obligation refers to the fact that there should be no obligation for the employer to provide work to the contractor. Equally, there should be no obligation for the contractor to accept or provide their services to the employer. As such, there should be a mutual lack of obligation between the parties. This applies to the start and end of the contracted services as well as during the services being provided – for example, a client should not be able to change the scope of services being provided and move a contractor from task to task without renegotiation of the contract and written agreements in place.
It is widely recognised that mutuality of obligation is a vital indicator of IR35 status. Before the updates to CEST in 2019, HMRC received heavy criticism for omitting the status test of mutuality of obligation altogether. HMRC stated that their CEST tool worked on the assumption that:
A person using CEST will have already established MOO, which is necessary for a contract to exist, otherwise there would be no need to be using CEST to determine the status of the existing or hypothetical contract
HMRC
HM Revenue & Customs
From this comment made by HMRC, it would follow that mutuality of obligation by necessity already exists in any contract. Therefore, MOO would not be any use as an indicator of IR35 status whatsoever. It is clear through looking at past case law that this is not something that is mirrored in the reasoning of Tribunal decisions.
It is important that we take a look at the updated version of CEST to get a full picture of HMRC’s viewpoint on MOO. Thanks to 2019’s updated version of CEST, we saw a relatively small inclusion of the status test of mutuality of obligation. Some new questions added appeared to begin to address the issue of MOO. Questions such as those in the “Business on own account” section.
Despite this, there is still a lack of regard for the importance of mutuality of obligation. It should be made clear, in each engagement, whether or not obligations exist between both parties. In addition to this, it’s important to note that if you answer previous questions in a certain way then the “Business on own account” section of the questionnaire remains unasked. Meaning that it remains possible for CEST to make an IR35 determination without making consideration of mutuality of obligation – one of the three key tests as established in the case of Ready Mixed Concrete.
This question has been a source of discussion and speculation ever since the tool’s implementation back in 2017. As the CEST tool is not considered legally binding, there are examples of cases in which CEST has been disregarded altogether in order to reach a conclusion on IR35 status through court.
An example of this is in the 2019 case of RALC Consulting Ltd v HMRC. HMRC themselves applied to reject the CEST determination as evidence yet giving no reasoning as to why. They neglected to provide any comment as to which parts of the CEST determination they rejected. Unsurprisingly this application was denied. This case does, however, go to show that HMRC will not let a positive outcome from their CEST tool get in the way of chasing potential tax revenue.
NHS Digital also provide an example of where reliance on HMRC’s CEST tool can still result in a bill to the tune of £4.3 million. Despite carrying out CEST determinations on each of their contractors, HMRC claimed that the results of individuals were not recorded and as such, they hadn’t kept detailed record of the CEST assessments undertaken. Bear in mind that this was prior to any release of the ‘reasonable care’ provision which now provides keeping a record as an example. More information on this can be found here.
Ultimately, HMRC’s promise to ‘stand by’ the result that CEST gives will only happen once they have satisfied themselves that the information used to generate it was accurate. Given some of the key questions are subjective, this gives HMRC plenty of room to challenge the accuracy of the tool’s use.
Status Review isn’t just an IR35 tool, it’s a complete support service for your business. It takes into account all members of the contractual chain when assessing status, making the determination accessible for everyone.
Most importantly the support of an expert IR35 assessor is no more than a phone call away, meaning that your engagement is considered by its own merits and by an individual who is dedicated to finding out the reality of the engagement and helping you to protect your business.
With Status Review, you receive a clear answer every single time. Not forgetting a detailed reasoning for any outcome, ensuring you have the support you require every step of the journey.
Assess the IR35 status of your off-payroll workers fairly and compliantly with the Qdos Status Review platform. We assess workers based on two decades’ of experience handling enquiries and completing assessments, and insure the risks involved whilst ensuring your obligations are met under the off-payroll working rules.
| CEST | Qdos Status Review | |
| Does it include all recognised IR35 status tests? | No | Yes |
| Does it provide free text fields for the contractor to provide additional information and context? | No | Yes |
| Approach | Algorithm/digital logic | Every submission is reviewed independently/holistically by an expert IR35 assessor. |
| How often is a definitive determination given? | 80% | Always - 100% |
| Does it include Tax Liability cover for the fee-payer? | No | Yes |
| Does this include a role assessment? | No | Yes |
| Does it include dispute management? | No | Yes |
| Are all parties included in the determination process? | No | Yes |
| Does it encourage the contractual chain to work together to come to a solution? | No | Yes |
| Will there be a clear audit trail? | No - each CEST assessment must be saved by the user. | Yes - all assessments are automatically saved in the Status Review portal. |
| Does it include issue of status determination statements? | No | Yes |
Orion has a long history of working with Qdos on IR35 matters. With provision of an easy to use interface and realistic response timelines, Orion has been delighted with the services provided by Qdos, who has carried out many IR35 assessments and implemented a range of solutions for various clients.
We have been frequently commended on our professional and process-led approach to IR35. Our aim to simplify workforce management and manage complex matters such as IR35 for clients has been well-received, and Qdos is an important part of our market offering. All parties have been satisfied with the results and we will look to emulate these arrangements as we progress towards April 2021.
Lorien partner with Qdos to provide our client base with the knowledge to effectively manage changes to IR35 legislation. Through adding Qdos to Lorien’s expertise in project management and contingent workforce models, we are able to offer an all-in-one solution to clients that ensures maximum compliance in addition to competitive advantage.
Since we started working with Qdos we have been continually impressed by their technical excellence and flexible approach to designing bespoke solutions for complex requirements. By combining cutting edge technology with their knowledge of the legislation, they have provided us with an excellent service which has been of considerable benefit to our business and clients. Their knowledge of the market is exceptional and, as a result, they are very proactive and able to offer helpful advice and ideas.
Working with Qdos and their IR35 status review tool has had two great advantages over standard agency contact with clients. Firstly it has really helped develop a deeper more consultative relationship (including clients established over 15 years!) and secondly it has given clients the confidence to act pragmatically when looking at the IR35 roll out to the private sector.
It’s great to be able to engage in this way with clients whilst at the same time talk to contractors confidently about their IR35 status moving forward. It is a tool I would thoroughly recommend using when engaging with any of your clients.
Our primary goal has always been to drive compliance throughout the supply chain and ensure our agency partners and contractors are operating legally and safely. This partnership is a 360 degree, end-to-end IR35 solution, ensuring those who are genuinely outside of IR35 can continue to work in this manner whilst giving their business a commercial edge.
