From 6 April 2020
Did you know that from 6 April 2020 the off-payroll working rules are extended? Under the new rules, medium and large private sector organisations engaging workers providing their services through an intermediary, such as a personal service company, must determine the status of the worker if the services were provided direct to the end client rather than via the intermediary. If, ignoring the intermediary, the worker would be an employee, the off-payroll working rules apply. HMRC’s Check Employment Status for Tax (CEST) tool can be used to fulfil the requirement to make a status determination. This tool was updated in November 2019 in preparation for the extension. And on 7 January 2020, the Government announced they were reviewing the rules to facilitate a smooth implementation. As part of the review, they will evaluate the effectiveness of the enhanced CEST tool, available on the Gov.uk website.
What is CEST?
CEST – Check Employment Status for Tax – a tool created by HMRC, can be used to determine whether, for a particular contract, the off-payroll working rules apply. It can also be used to ascertain whether, for a particular piece of work, a worker is employed or self-employed. If you are a medium or large private sector organisation which uses workers who provide their services through an intermediary, such as a personal service company, you can use CEST to meet your obligation to undertake a status determination, under the off-payroll working rules as they apply from 6 April 2020. You must give the worker a copy of the determination, together with reasons for reaching it. Printing off the CEST decision will tick this box. Although using the CEST tool to make your status determination is not compulsory, it is advised. Not least because HMRC will accept the decision reached by the tool, as long as the information entered is correct.
In case you’re wondering, the tool works by asking a series of questions, the answers to which are used to determine the status of the worker. The CEST tool can be used anonymously. However, please bear in mind that there is no facility to save any of your answers and return to them later. Plus if you close the tool before your determination is complete, your answers will be lost. It will also time out if you leave it idle for 15 minutes. We therefore advise you to ensure you have all the relevant information to hand before starting your determination. Your starting point is the contract of employment. The tool assumes that a contract is in place – this highlights the significance of mutuality of obligation, as without mutuality of obligation, there can be no contract. To use the CEST tool, you will need the following information:
• Details of the contract
• The responsibilities of the worker
• Who decides what work needs doing, when and where
• How the worker is paid
• Whether the engagement includes any corporate benefits or reimbursement of expenses
It is then simply a case of you working through the question and selecting the best match answer from the available options. Once you have answered all the questions, you are then given the option of reviewing the answers selected, before the decision is given.
The CEST tool will use the information you provided in response to the questions, to give you one of the following outcomes:
• Off-payroll working rules (IR35) do not apply
• Off-payroll working rules (IR35) apply
• Unable to make a determination (for whether the off-payroll working rules apply)
• Self-employed for tax purposes for this work
• Employed for tax purposes for this work
• Unable to make a determination (for employed or self-employed for tax purposes).
It will also set out the reasons for the decision reached.
Use of the tool by a worker
If you are a worker providing your services through a personal service company or other intermediary, you can also use the CEST tool to check your status. From 6 April 2020 onwards, you can use it to check a determination given to you be an end client (a medium or large private sector organisation); and if you disagree with the determination given, the CEST decision can be used as the basis for a challenge. Prior to 6 April 2020, and on or after that date where the end client is small private sector organisation, you can use the CEST tool to see if you need to operate the IR35 rules.
HMRC produced detailed guidance on using the CEST tool, which can be found in their Employment Status Manual. Check this out before using the CEST tool. The whole area of IR35 and employment status is an area of constantly changing legislation and case law. Remember we’re always here to help you to safely navigate your way through the employment tax minefield.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.