· News

HMRC updates CEST IR35 tool

HMRC's new CEST tool went live 2 October

HMRC updated its Check Employment Status for Tax (CEST) tool for IR35 guidance on 2 October.

The tool, which is now hosted on HMRC’s internally developed Ocelot software, has been tweaked to offer employers and freelancers advice throughout the process.

The launch, which happened without announcement and without mention in the government website update notes, has been criticised by experts after being made public by news site ContractorUK.

Seb Maley, CEO of tax consultancy Qdos, said the change was a “damp squib”.

He told HR magazine: “On the whole, not a lot has changed – which is hugely disappointing.

“CEST has been re-platformed, with the view of HMRC being able to tweak and improve it on the fly. 

“But the problem is, the tax office doesn’t seem to have made the fundamental changes that the tool desperately needs. CEST is just as flawed as ever.”

Read more: Government opens IR35 consultation

The CEST tool has faced criticism since HMRC's IR35 off-payroll reform.

In some cases, the tool has been unable to determine a person’s status due to grey areas in how employment status is defined.

Despite some changes to the structure of the questions, with summaries at the end of each section, the new tool is largely the same as its previous iteration.

Maley said: “This is a huge problem, given CEST overlooks key aspects of case law upon which IR35 status can hinge. Put simply, it means the tool still poses a threat to compliance.”

One such piece of case law still absent from CEST is the concept of ‘mutuality of obligation’, which constitutes one of the minimum requirements of an employment relationship in case law.

It expresses the mutual obligations between worker and work provider, where a worker is obliged to perform labour when work is available, and a work provider is obliged to make work available for the worker.

Maley added: “The crux of it is that despite the so-called updated version of CEST being released, businesses shouldn’t rely on it to determine the IR35 status of contractors or the employment status of sole traders. CEST is not mandatory and a second opinion is advisable.”

The government has said that a second phase of development for CEST 2.0 is planned, which may be backed by AI, though it has not yet announced any release date.