HM Revenue & Customs (HMRC) has updated the platform underpinning its IR35-related Check Employment Status for Tax (CEST) tool, claiming the change will improve how users interact with the service.
The government tax collection agency confirmed to Computer Weekly in a brief statement that CEST had been “successfully moved” to a new platform on Monday 2 October 2023.
The platform in question is understood to be an in-house developed setup called Ocelot, which is billed by HMRC as “enabling the rapid production of interactive guidance” to make tools like CEST easier for end-users to navigate.
Where CEST is concerned, the Ocelot migration means information from the HMRC Employment Status Manual (ESM) is now embedded in the tool, offering further guidance on how it works, without users needing to open another window to access it.
According to a guidance paper published by the Office of Tax Simplification (OTS) in April 2021, Ocelot is considered something of a success for the HMRC in-house development team, as it has also been rolled out internally to The Valuation Office Agency and the Border Force.
“Having seen the benefits of using this software internally within HMRC, the guidance team developed the software to deliver interactive guidance through Gov.uk, and since autumn 2020, the software is considered where a user need for interactive guidance is identified on Gov.uk,” the OTS document stated.
Computer Weekly understands the migration to Ocelot is the first of a two-phased revamp for CEST, which has been subject to repeated criticism since its launch in lead up to the public sector reform of the IR35 rules in April 2017.
The tool was introduced to help public sector organisations cope with the additional administrative burden the reforms placed on them, as the changes made end-hirers responsible for determining the employment and tax status of the contractors they engage.
CEST poses a series of questions that end-hirers must answer about any contractors they engage to determine whether or not the work they do and how it is carried out means they should be taxed in the same way as permanent employees (inside IR35) or as off-payroll workers (outside IR35).
Before the reforms came into force, contractors were responsible for working out their own tax status, which is a system HMRC claimed was being deliberate misused by some contractors to artificially minimise how much employment tax and National Insurance Contributions (NICs) they have to pay.
The second phase of improvements to CEST will see updates made to the questions that CEST uses to determine how contractors should be taxed.
Rebecca Seeley Harris, an independent legal consultant who specialises in employment and tax status issues, told Computer Weekly HMRC’s phased approach to updating CEST “seems very sensible” and the migration to Ocelot should make the upgrade easier to do overall.
“Changing the questions is going to take time and understanding, but being on the new platform will no doubt make it easier to make the changes when they happen,” she said.
“CEST is used by a lot of clients, usually as part of a wider assessment, but these changes will hopefully make the tool more useable. I would never advise that CEST is used in isolation as the only point of assessment, but it is a useful part of the overall assessment. This is especially because it is an indication of HMRC’s thinking on status.”
She added: “As I understand it, HMRC are keen to reduce the ‘unable to determine’ percentage, so the changes to the questions will hopefully have an impact on that.”
However, Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, told Computer Weekly the updates to CEST amount to an “interim release” because “nothing has materially changed” with the tool.
“The main visible change is that instead of summarising all the question answers at the end, they are done in stages at the end of each section. In my view, that’s more confusing and not a useability improvement,” he said.
“HMRC had been signaling that its tool would include embedded guidance, but all they’ve done is put links to the ESM guidance. It’s hardly embedded. Regardless of the changes this week, the same major problem with CEST remains – it is misaligned with the law.”
To emphasise this, Chaplin pointed to the Atholl House April 2022 Court of Appeal decision that confirmed that “all relevant factors” must be taken into account when ascertaining employment status and that this must be a “multi-factorial” determination.
“With CEST, ‘outside IR35’ determinations are handed out using a single-factor determination, which exposes firms that use it,” he added. “HMRC has repainted CEST’s bodywork, but the underlying decision engine is broken.”