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How did respondents react to CEST in the IR35 consultation?

Friday 5th October 2018

Reforms to IR35 legislation in April 2017 brought with it the government’s new tools for contractors and agencies alike to check employment status for tax (CEST). However, since its introduction, CEST has come under a great deal of scrutiny for its flawed approach to identifying the status of a contractor.


CEST was designed to be used for both public and private sector contractors, with the only difference being who would actually use the tool to identify status. It was identified fairly early on, however, that if CEST didn’t look at all three tests of employment that are typically used to assess status (mutuality of obligation, substitution and control). Notably HMRC has recently revealed that the CEST tool works under the assumption that mutuality of obligation has already been identified for a contractor, something which was not stated when the tool was first introduced.

With the possibility that IR35 reforms will be extended into the private sector, the government opened a consultation that ran from May to August of this year, that aimed to evaluate off-payroll working rules for the public sector and explore options for extension into the private sector.

Responses to the IR35 consultation

Following the conclusion of this consultation, a number of businesses and organisations published their response, much of which placed quite a negative stance on CEST. Just some of the comments revealed include:

“CEST does not consider the particular kind of MOO needed to determine whether a contract is an employment contract, nor, fully being in business on one’s own account” – Institute of Chartered Accountants (ICAEW)

“Given the tool does not align with IR35 case law, there is a strong possibility that it has contributed to many incorrect IR35 decisions in the public sector” – QDOS

What can contractors and agencies do if they aren’t confident in CEST?

CEST is not a mandatory tool, contractors, agencies and end hirers have no obligation to use the tool in order to help to determine an IR35 status. Subsequently should you not feel confident in using the government’s CEST tool, you can have your contract and working practices reviewed to determine your status in respect to each engagement.

Our team at Sterling will be happy to discuss IR35 and any of the above points. Contact us today with your query.

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