What can an organisation do if the CEST tool gives an undetermined result for an IR35 assessment?
HM Revenue and Customs (HMRC) provides a free online tool for carrying out employment status assessments under the IR35 rules (also known as the off-payroll working rules). The CEST (Check employment status for tax) tool asks questions relating to the contractual arrangements and working practices for the particular engagement, to determine whether the engagement is inside or outside the IR35 rules.
HMRC will stand by the result produced by the service provided that the information on which it is based is accurate and the tool is used in accordance with the HMRC guidance. However, in some circumstances, the CEST tool is unable to determine employment status based on the information given.
If the CEST tool gives an undetermined result, the organisation will need to find an alternative way of carrying out the assessment to determine the contractor's status. It could carry out the assessment internally, if it has the required understanding of the process; it could seek advice from an external qualified professional adviser; or it could telephone the HMRC status helpline.
The assessment should be based on the HMRC guidance on determining status. The organisation must take reasonable care when carrying out the determination, whether this is done internally or externally. The HMRC employment status manual sets out what is required when taking "reasonable care".
Where the result of an assessment is borderline as to whether the engagement is inside or outside IR35, the route that the client organisation takes will depend partly on the level of risk that it is prepared to accept. If the client determines that the contractor is outside IR35, and it is later found that the client did not exercise reasonable care in making this decision, liability for the tax, national insurance contributions and apprenticeship levy will lie with the client. That is, the client would take on the contractor's liabilities as well as their own.
Medium- and large-sized private sector organisations are responsible for applying the IR35 rules from 6 April 2021.