The risk of using CEST and demonstrating ‘Reasonable Care’
When the IR35 Legislation is extended into the Private Sector in April 2021, End-Hirers will be required to demonstrate ‘Reasonable Care’ in determining the status of their off-payroll workers. In the run-up to the 2020 implementation date, many organisations default position was to use HMRC’s CEST Tool, however, it should be thoroughly considered if this will provide the required service that End-Hirers need whilst ensuring they meet their Reasonable Care obligations.
CEST is an automated digital tool designed by HMRC to assess a contractor’s employment status. It is a simplistic questionnaire answered in a yes, no or standard response format. Whilst this seems simple and straightforward, that is not always the case. Numerous organisations have commented that the questions CEST asks users are not easy to understand and responses are shoehorned into a certain format that doesn’t align to the reality of the relationship. Quite often, the answers require a middle-ground approach with consideration given to additional factors and circumstances. From the off, many organisations started to feel that CEST wasn’t obtaining a truly accurate picture of the circumstances as an End-Hirer would have to select a response that is the most appropriate out of all the available responses but not completely in line with the reality of the situation.
Whilst CEST may provide a determination on the more straightforward cases, where the yes and no responses work, in the more complex scenarios CEST fails to provide an outcome meaning End-Hirers will need to look elsewhere for assistance.
Are all employment status indicators used in forming status determination statements?
It is well reported that CEST does not consider one of the most fundamental IR35 indicators that has been given much significance by the courts – Mutuality of Obligation.
Mutuality of obligation has become one of the most prominent aspects when assessing employment status and we have seen cases decided on this point.
Does CEST consider contractual terms and conditions?
Whilst HMRC state that End-Hirers must consider the contractual terms v reality of working practices, CEST completely overlooks the importance of analysing contracts and makes a determination regardless of what has been documented and agreed between the parties.
Does CEST constitute ‘Reasonable Care’?
There have been various cases where CEST has determined a different outcome compared to the courts. In the case of RALC Consulting Ltd v HMRC, CEST was branded as “irrelevant” by HMRC themselves. HMRC went on to state “While CEST can be helpful in providing guidance, it is only the application of the legislation and relevant case law to the hypothetical facts that must be considered by the tribunal”.
HMRC have stated that they will ‘Stand by the result given unless a compliance check finds the information provided isn’t accurate’. This doesn’t completely exonerate end-hirers as HMRC may still come to a different conclusion as we saw in the case of RALC.
Consider all your options before choosing CEST
Whilst CEST may initially seem like the easiest and cheapest way to comply with End-Hirers new responsibility of assessing the status of off-payroll workers and demonstrating Reasonable Care, it is advised that a thorough assessment of all alternatives is undertaken before End-Hirers decide and move forward with their approach. We have seen so many times that End-Hirers have become frustrated with CEST and revert to alternative solutions later down the line and after so much time and effort has been put into the use of the tool.
For more information on the alternative solutions available and to compare what they offer businesses, click here.
About Brookson Legal
Brookson Legal Services is the only SRA regulated law firm that solely focuses on and specialises in IR35 and can offer education, guidance, and legal consultancy advice to ensure you legitimately maximise the number of contractors outside of IR35. Enabling your business to protect your flexible workforce and give you a competitive advantage!
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