Many within the contractor industry have criticised HMRC’s CEST tool as not fit for purpose. The digital tool was designed by HMRC to help contractors determine their IR35 status but it has been scathingly criticised by the self-employment industry. ContractorUK firmly surmised it as: “wrongly seen as mandatory. Too blunt to be sector-specific. Unhelpful to big firms. Fuelling wrong IR35 decisions. And a potentially unlawful derogation of HMRC’s powers”, while ContractorCalculator deemed it ‘hopelessly unreliable’.
Analysis of the CEST tool
HMRC analysed the IR35 CEST tool against 24 court cases and claimed only 2 assessments made by the tool were inconsistent with the court’s decision. However, ContractorCalculator did a comprehensive testing of these same cases and found only 14 of the 24 cases evaluated with the IR35 CEST tool were in line with the court’s decision. This makes up just 58% of assessments as accurate. Out of the remaining 10 cases, 7 of these were entirely incorrect and 3 cases gave the correct answer but for the wrong reasons, meaning it was a ‘false positive’. Thus, Julia Kermode, CEO of Freelancer and Contractor Services Association (FCSA) concluded that “the CEST tool is not fit for purpose and should either be removed or updated as soon as possible.”
What is a false positive?
As noted above, a ‘false positive’ result from the CEST tool is when the evaluation of an individual’s IR35 status is correct but the reasons behind it were different to those decided in court. This is problematic because it highlights the issue of ambiguity with evaluating IR35 status and how coming to the correct decision is more of a ‘coin-flip’ than a clear and structured process.
IR35 legal expert Martyn Valentine, from The Law Place, resolved: “CEST has no basis in law, is not defined in statute, and it does not align with the law. It is now proven to hand out decisions that are contrary to the law […] The tool must be withdrawn to avoid further misrepresentation of the law by Government.”
HMRC claims CEST is just a guide
In May 2018, HMRC stated that the CEST tool only “provides a reasonable guide”. However, many have called this into question, as experts have noted HMRC’s continued shift in stance toward the tool following continued pressure on its inaccuracy. In 2016, they stated the IR35 CEST tool was the “main way” to test a PSC’s status, while in March 2017, they amended the statement to it being an “optional” tool to assess your status. This continuing change in position does not leave much room for confidence in the IR35 CEST tool.
The Institute of Chartered Accountants in England and Wales (ICAEW) warned “although CEST is supposed to be a simple tool to determine status, the black and white nature of the questions do not fit well with making an informed, considered, qualitative appreciation of the whole, and are not necessarily fit for a 21st century labour market, and in particular, the private sector.”
How can we support you?
At Cloud9 Umbrella and K&B Accountancy Group, our teams are always on-hand to provide accurate, impartial and compliant advice. If you believe you are in fact caught inside of IR35, Cloud9 Umbrella provides a transparent, 100% compliant and efficient payroll and employment service so you don’t have to worry about the complexities of contracting. Find out more about how we can look after the administrative burden for you. For PSCs or those looking to incorporate, at K&B Accountancy Group their Essential IR35 package includes access to IR35 experts Bauer & Cottrell who can provide guidance, reviews and protections against IR35 legislation
If you’re new to contracting or only contracting for a short time, let Cloud9 Umbrella handle things for you. For a limited time only we are offering new contractors the chance to trial our service. We will process your first payslip free of charge and if you love what we do for you, you can get another month free too! * Find out more and sign up today!
If you’re an existing limited company director who is looking to switch accountants, you can switch to K&B Accountancy Group for FREE without the need to pay for any ‘catch up’ or retrospective accountancy fees for the previous year’s accounts and corporation tax return*.