IR35: HMRC launches updated CEST tool


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IR35: HMRC launches updated CEST tool

HMRC has released an updated Check for Employment Status for Tax (CEST) service, used to find out whether a contractor or employer should be classed as employed or self-employed for tax purposes, and in-line with IR35 legislation.

On 6 April 2020, IR35 rules, which currently apply to the public sector, will also come into force in the private sector. The tool was originally created in March 2017 by the government to check employee statuses.

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.

Accurate input of data is still necessary for the CEST tool to function as required, and for organizations 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 name is required to have the same tax deducted from their payslip as a standard employee.

Before 6 April 2020

If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.

If you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.

From 6 April 2020

From 6 April 2020 how the rules are applied will change.

All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.

If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.

Source: AccountancyAge