Concerns About the Check Employment Status Tool

Abstract

The clamp-down on the use of intermediaries, usually Personal Service Companies (PSCs), in the UK to evade or minimise the payment of income tax and National Insurance Contributions began in 2000. IR35 applies when, if not for the intermediary, there would be a direct contract of employment to personally perform services between the worker and the end-client. As of 6 April 2021, the onus for determining the application of IR35 was shifted from the PSC to medium and large companies in the private sector that engage with a PSC; this obligation has applied to public sector end-clients since 2017.

Calls to further postpone these changes often drew attention to concerns about HMRC’s Check Employment Status Tool (CEST). This article offers a critical assessment of CEST, focussing on the reasons and (potential) benefits of having such a tool and whether CEST can offer any improvement and provide greater clarity for taxpayers. The reasons behind CEST are understandable and the intended benefits desirable, but the tool is inconsistent with the approach taken by judges, who are free to disagree with CEST’s determinations. As Noele McClelland points out, the way that factors are weighted has been criticised. This article agrees with those who criticise the lack of emphasis placed upon mutuality of obligation and the overemphasis placed upon substitution. There are also practical issues that taxpayers may encounter. Overall, this article concludes that CEST will not likely result in improvement or more clarity for taxpayers.

A wide range of sources were consulted to reach the above conclusion: 1) recent case law, most famously involving TV personality Lorraine Kelly’s PSC; 2) journal articles expressing the views of experienced solicitors; 3) reports by parliamentary and government bodies; 4) various guidance published by HMRC; and 5) appraisals of CEST published on Contract Calculator.