Contractors, check your IR35 status…

income tax

HMRC has released an updated version of the Check Employment Status for Tax (CEST) tool, which is used to determine whether a contractor should be classed as self-employed in line with IR35 legislation.

For those not in the know, IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name. If a contractor is operating through an intermediary, such as a limited company, and but for that intermediary they would be an employee of their client (in other words, they are operating “off payroll”) then IR35 kicks in.

In 2017, HMRC introduced new off-payroll rules to the public sector, which saw some contractors’ net income cut significantly. HMRC also shifted the responsibility for compliance from the individual contractor to a public body or recruitment agency.

From 6 April 2020, new tax rules will use the 2017 changes as a starting point for the extension to medium and large organisations in the private sector.

The efficacy of the CEST tool has been criticised as being not fit for purpose as it ‘fails to deliver definitive answers’ in many cases. HMRC promised to improve the CEST tool before April’s extension of IR35, and has consulted stakeholders to help guide the update – around 30 questions have been updated or added to the CEST tool to offer a more accurate determination of whether a worker falls within the remit of the off-payroll working rules, and HMRC has also tested the CEST tool against case law and settled cases.

Commenting on the update, Andy Chamberlain, Deputy Director of Policy at the Association of Independent Professionals and the Self-Employed, said: ‘We have grave reservations about CEST. We’ve looked at the updated version and spoken to HMRC and we’re still not satisfied it is accurate. ‘It still does not test the mutuality of obligations, which is a key tenet of recent IR35 cases.’

If you’re a contractor and are concerned as to whether IR35 applies to you, contact us for advice.