HMRC has now released the long-awaited update of its Check Employment Status for Tax (CEST) tool, or rather an “enhancement” as HMRC puts it. This comes after phase 1 of the latest CEST update back in October 2023, which involved moving the tool to HMRC’s OCELOT platform, improving guidance accessibility, and promising a more transparent explanation of outcomes.
So, has this latest update delivered any significant changes? In short – no, not really.
What has changed?
HMRC states: “The check employment status for tax tool has been amended to simplify the language. We have removed information for some customers where special rules apply and covered this within the tool itself. Useful links have also been included for related guidance.”
The most notable updates are:
- A new question near the beginning asking if there is (or will be) a contract in place. This reflects the PGMOL Supreme Court ruling that where a contract exists (which can be verbal), mutuality of obligation (MOO) exists too.
- Additional guidance within the financial risk questions, and updates to the associated guidance on substitution and financial risk.
- A more user-friendly experience with simplified language and better guidance on what to do based on the result you get.
No change to CEST’s logic
Most notably, the underlying logic of the tool remains the same. This means any CESTs completed before these changes, would output the same result on the new version.
This is at least good news for those who use CEST worrying about whether the changes would mean they would have to run the tool again. Providing your CESTs slot into an overall robust process for assessing status, running the tool again shouldn’t be necessary unless there has been a change to working practices or contractual terms. We do recommend however, that firms read the updated guidance.
With no changes to the logic, the tool still cannot provide a determination in all cases, and “undetermined” outcomes remain possible – occurring in about 20% of completed assessments.
Does the latest CEST update fix its issues?
We know now that CEST aligns with the current case law precedent around MOO, as established in PGMOL. By confirming the existence of a contract, anyone completing CEST effectively confirms that the MOO test is satisfied.
Historically, we have found that many users don’t read the guidance properly (or at all!) or assume the questions are simpler than they are, particularly those in the personal service and financial risk sections. Blink and you will miss the new text that has been added within the tool, and it still requires the user to click through to additional pages to read more detailed guidance.
We are not sure a few “useful links” will adequately address this problem. Anyone hoping to yield a 100% accurate output they can be confident with, needs a solid understanding of employment status case law.
“Undetermined” outcomes still a problem
It remains to be seen, but we don’t anticipate the changes resulting in a meaningful reduction of the number of “undetermined” outcomes, which the tool states “is typical when the information is finely balanced”. This result still leaves the user with little practical guidance beyond a referral to the employment status manual. IR35 either applies or it doesn’t so here lies a rather significant flaw in its logic, which fosters a situation where the user may be tempted to manipulate the result.
It is still not made clear enough to users that they must first identify the correct parties to the engagement before using CEST. We frequently see the tool being completed by the wrong parties in the supply chain, often by individuals without adequate oversight or understanding of the contractual and working arrangements – a common issue, especially within large organisations where complex supply chains are the norm. For example, is the engagement genuinely a contracted-out service? These are fundamental issues that need to be resolved before even attempting to complete the tool.
CEST should still not be relied upon in isolation
Our view remains that whilst CEST can be a useful tool as part of wider process, it is too basic to be relied upon in isolation for making robust Off-Payroll / IR35 or employment status determinations.
The tool lacks the ability to evaluate the broader context and handle real-world complexities and nuances. Status considerations require a full “stand back and look at the whole picture” assessment, reflecting the essential principles established in landmark cases such as Atholl House and PGMOL. CEST might have been tested against real-life cases in a technical sense, but it simply cannot apply the holistic evaluation that tribunals undertake.
HMRC maintain that they will stand by the results of CEST providing that the answers are accurate, and herein lies an aspect of CEST that needs great care. Unless you are 100% certain that it has been completed accurately then reliance upon its results is not recommended.
What does best practice look like for those using CEST?
If your organisation has chosen to use CEST as its method for determining off-payroll workers’ IR35 status, it should always be:
- Bolstered into a more detailed process and Status Determination Statement (SDS) that includes consideration of the full picture and the worker’s wider business context.
- Backed up by strong evidence, which demonstrates that a) the correct party is completing it, and b) the answers are 100% accurate.
Final thoughts
While HMRC’s latest CEST update introduces minor improvements to language and usability, it does not address the tool’s core limitations. CEST remains a basic starting point, not a comprehensive solution.
Organisations using CEST must take great care and ensure it is embedded within a broader, robust status assessment process.
Getting status wrong can expose organisations to significant tax liabilities and penalties. If you are not 100% confident in your determinations, always seek the advice of a specialist.
