Help! My client’s using CEST!

You’ve just found out your client is going to use CEST to determine your IR35 status. “What are they thinking?!” we hear you say. In this guide we’ll tell you why it might not be a bad thing, and how to improve your chances of a fair determination.

It means your client is trying to get it right

It might be cold comfort but reflect on this: many clients have gone all-out and banned outside IR35 working, forcing everyone to use umbrellas. There hasn’t even been an attempt to assess working practices.

By virtue of the fact your client is using CEST, it means they are attempting to assess you fairly, and that’s a great starting point.

Can you persuade them not to use CEST?

Depending on your client, you may have enough influence to persuade them not to use CEST. If you’re in a FTSE100, then forget it. But in smaller sized firms you may be able to bring the decision maker around – to at least listen to why they shouldn’t use CEST.

Remind me, why shouldn’t they use CEST?

It comes down to three main factors:

  1. It simply presumes ‘mutuality of obligation’ (MoO) exists, without asking questions to determine if it does, or not. This is important: if MoO does exist, it nudges you closer to being inside IR35. Thus, the CEST tool is loaded in favor of pushing you inside IR35.
  2. Judges have ruled, that in determining IR35 status, you need to step back and look at the bigger picture. Using CEST does not do this, and CEST determinations may not be robust in court – leaving a client exposed.
  3. And on that note – it has been proven. There are many status cases which have been proven in court, yet CEST provides contradictory determinations.

In a nutshell, CEST is built around HMRC would like the law to be written, not how it actually is. You can read more about CEST’s shortcomings here.

Alternatives to CEST

Undoubtedly the best alternative to CEST is to use a third-party assessor, such as Kingsbridge, Qdos or IR35 shield. These companies not only take responsibility for making the determinations, but they will also insure the outcome. Meaning if they get it wrong, they’ll cover the cost of defending the case with HMRC. This is a brilliant, low-effort, low-risk solution for clients – and not enough clients know these services exist yet.

Here at inniAccounts we’ve worked closely with Kingsbridge for a number of years and can recommend their approach – their head of tax has successfully defended over 500 IR35 cases. If your client is using CEST, it’s well worth picking up the phone to Kingsbridge.

Challenging your determination

The reason why it’s good news that your client is using CEST is that it means they’re following the process of IR35 status determination. As part of this process, you will be issued with a status determination statement (SDS), explaining your status and how it was determined. You are allowed, by law, to challenge this determination and your client has 45 days to respond to this challenge. This is your best chance of success.

The quick approach: get professional help

The quickest and easiest approach to challenge your SDS is to get someone else to do it. Again, we recommend that you give Kingsbridge a call. They have successfully helped a number of our clients overturn inside IR35 SDSs. You’ll need to pay a fee, but it’s not much, and it’s far less than the tax you’ll pay if you’re forced unfairly inside IR35.

The DIY approach to challenging status

If you want to challenge your SDS yourself, you can. We recommend using your SDS as a starting point – in most CEST SDSs we’ve seen there is also a copy of the information that your client provided to CEST. Examine this and see if there are any significant areas that you disagree with. From there, you can compile evidence to support your argument.

The reasonable care argument

A common pattern we have seen with CEST is employees in end-client organisations with very little knowledge, training or experience being made to complete CEST on behalf of contractors. HMRC are very clear that ‘reasonable care’ must be taken when determining IR35 status (see HMRC’s guidance here). In particular, the following bullet points are taken directly from HMRC for examples of not taking reasonable care (bold added by us):

  • determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case
  • determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker
  • failing to reconsider determinations where there has been a material change in circumstances
  • an absence of any proper support or training within the organisation to enable those individuals responsible for making determinations to accurately consider the off-payroll working rules
  • inputting inaccurate information into CEST
  • failing to take account of all relevant evidence
  • the person tasked with completing the SDS does not possess the knowledge required to complete it and is not provided with the required level of support
  • the client subcontracts the SDS process to another party and does not confirm the accuracy of that conclusion and the reasons for it.

Looking back at this list, do you believe you have an argument for your client not taking reasonable care? This could form a basis for you to challenge your CEST determination.

Remember: you’re entitled to a fair determination, and that’s it

A final parting thought: it is more than reasonable to push for a fair IR35 determination, and you may have grounds to think that your CEST determination is unfair. Build your case. Argue your point. What is not reasonable is to demand to be put outside IR35: demand a fair determination, and let that determine your status.

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inniAccounts

We're a multi-award winning, innovative accountancy practice who use cloud technology to deliver an efficient, accurate and reliable accountancy service to contractors, freelancers and small businesses.

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