HMRC has this week begun the roll out of its new and improved Check Employment Status for Tax tool (CEST), with Phase 1 being the movement of CEST to an online platform called OCELOT, with the guidance more easily accessible for users answering the (currently unchanged) questions, along with more detailed reasoning around results. CEST data will also be recorded and analysed by HMRC to enable continuous improvement.
It is not clear when we can expect Phase 2, but we would hope this to include changes to the questions and / or logic used by CEST. HMRC has stated that OCELOT has undergone “rigorous testing” against case law and will publish the results in due course.
For B&C, the anticipation for Phase 2 brings with it a lot of questions. Will it finally address MOO which has been notably absent from CEST V1 since its inception? Will a right of substitution alone remain a determinative answer? Can we expect less “undetermined” results and what will HMRC’s promised “assistance” with such results involve? Besides for “continuous improvement”, will HMRC utilise the recorded results data of CEST users (which they’ve never had with CEST V1) for any other purposes?
And finally, and perhaps most worryingly, if we are looking at a very different tool, where do organisations stand with determinations made using the old version? Will they be expected in any circumstances to re-assess with the new tool? These are all questions that phase 2 MUST address so that contractors and engagers who have historically used CEST know where they stand.
We have always been of the view that CEST is not fit for purpose owing to its lack of alignment with case law and omission of the fundamental status test of MOO. So, whilst Phase 1 is a step in the right direction of sorts, only Phase 2 can prove whether HMRC’s CEST tool can finally make its move to being a fit for purpose method of deciding IR35 and employment status. Our inkling is probably not and that there will still be challenges ahead.
In the meantime, we would advise to err on the side of caution if relying on CEST in isolation to make an IR35 determination. With HMRC ramping up their IR35 / off-payroll compliance activity, our view remains that engaging the advice of a specialist, who will consider the reality of the working practices as well as the written contractual terms against up-to-date case law precedence, is a much more robust way of demonstrating reasonable care in compliance with the IR35 rules.