HMRC has decided to give us an early Christmas present – an update to the much-maligned CEST tool designed to determine off-payroll employment. The Check for Employment Status for Tax (CEST) is principally designed to identify whether someone is an employee or a contractor.
CEST – What Does This All Mean?
After midnight, on April 6th, 2020, IR35 rules which are currently enforced in the public sector will come into full legal force in the private sector. The CEST tool was designed by HMRC in early 2017 to help give individuals and companies a toolkit to help identify their future payroll needs.
According to Accountancy Age:
“Criticisms had been leveled at the tool since, with many saying that it is not fit for purpose, often not delivering a definitive answer in cases where the employment status is more borderline or challenging.
HMRC said that it would enhance the CEST tool before the IR35 reforms were rolled out to the private sector, and this update looks to have confirmed that commitment. The UK’s tax body reportedly consulted stakeholders to help guide the update, and rigorously tested against case law and settled cases.
Susan Ball, an employer solutions tax partner at RSM, said: “It is understood that around 30 questions have been updated or included and that several industry bodies and reportedly more than 300 stakeholders were asked to use the new version and feed in comments. Until now CEST produced an answer in only 85% of cases.
“The new tool has also been rigorously tested against case law and settled cases by officials and external experts. After answering a series of questions, the CEST tool will return a judgment on whether IR35 legislation applies or not. Questions cover worker’s duties, substitutes and helpers, working arrangements, financial risk, worker’s involvement and contracts (including if working for others).”
Accurate input of data is still necessary for the CEST tool to function as required, and for organisations that employ a large number of contractors, an internal audit of the current workforce is a good first step.
Under IR35 legislation, a contractor whose relationship with a company resembles an employee in all but the name is required to have the same tax deducted from their payslip as a standard employee.
“It must be remembered that CEST is the only tool that will produce a result that HMRC will stand by – provided the information input is accurate and the tool is used in accordance with the guidance,” warned Ball.”
How Can Prestige Business Management Help?
With less than 18 weeks until the changes become legal, Prestige Business Management can help you with technical guidance to help you understand whether you have employees or contractors – or on the flip side help and support for contractors during this period of change. Why not call us today on 0203 773 2927 to find out more about how we can help you prepare for off-payroll changes in 2020.