IR35 changes: HMRC ups its game

As businesses continue to prepare for the impact of the April 2020 changes to IR35 and the private sector, it is important to be aware that this week the government has launched an update to its online check employment status for tax (CEST) tool.

Work can only be employment for tax purposes if:

• the individual effectively has to carry out the work personally;
• there is an obligation on the individual to do the agreed work and on the end-user to pay for it; and
• the end-user has significant control over the work to be done and how, when and where it is done.

As well as only producing an answer in 85% of cases, previous iterations of CEST had been rightly criticised for not taking enough consideration of control in determining whether tax and NI is payable.

The latest version is much less crude and deals with control in much more detail. Of course, CEST is still not infallible.

In order to be well prepared for the April 2020 changes and avoid the very expensive consequences of getting this wrong, it is crucial that businesses review their use of contractors by:

• carrying out an audit to understand how the working relationship operates in practice rather than only relying on the written contracts, which will invariably state that the individual is self-employed.
• only inputting accurate information into status checking tools such as CEST.
• ensuring right to work checks are carried out if there is a possibility that the individual is employed for tax purposes. Businesses that fail to do so and are found to have employed an illegal worker face heavy sanctions.

For more information on how to get ready for the imminent IR35 changes, including specific advice where you believe that the status checking tool has not given the correct answer, contact our employment team.