Tweaks to simplify HMRC’s IR35 tool on the horizon
Last week, the Office of Tax
Simplification (OTS) put forward its view on HMRC’s Check Employment Status for
Tax tool (CEST), which the taxman has been under pressure to improve since it
was released in 2017.
CEST was built in order to help
engagers (contractor’s clients) in the public sector determine whether an
individual belongs inside or outside IR35. Now, with further changes to the
off-payroll working rules set to arrive in April 2020, HMRC is exploring ways
to enhance the tool.
In a document titled, ‘Simplifying everyday tax for smaller businesses: a
further business lifecycle review’,
the OTS looked at how the tax system overall could be simplified for
businesses. It also focused specifically on the confusion that still exists
around the IR35 legislation.
HMRC’s IR35 technology, CEST, was
the main discussion point in relation to the intermediaries legislation, with
the OTS making a number of recommendations.
Improve CEST before IR35 reform
First and foremost, the OTS advised
HMRC to continue making “its planned improvements” to CEST before IR35
changes in the private sector are introduced next year.
The government has often said work
to refine the technology is well underway. In the IR35
forum minutes taken from February, it was revealed that HMRC is encouraging
industry experts to help:
“HMRC are continuing to work with
stakeholders to enhance CEST and encouraged members to respond to the
invitation to take part in those discussions and user tests.”
Taxman encouraged to offer better support
CEST has been used around 800,000
times since its introduction and provides an answer regarding a contractor’s
IR35 status in about 85% of cases.
To better support the 15% of cases
that CEST cannot determine an outcome for, the OTS called on HMRC to signpost
to the “guidance and the employment status helpline, where the tool does not
provide an answer, or the taxpayer does not agree with the finding.”
Simplify the tool’s language
Generally speaking, the IR35
legislation is considered complex. Not just for the fact that it contains
confusing tax terminology either. The rules are widely regarded as ambiguous
and many different factors need to be taken into account when setting status.
The OTS suggested that the language
used by CEST doesn’t help the situation. A lack of understanding, of course,
leads to mistakes being made when administering IR35. Therefore, the OTS
explained that “among other things, some of the language used will be in
plainer English to reflect wider target audiences.”
Any move made to help engagers get
a firmer grip on the questions that CEST asks will be welcomed by all parties.
CEST to get smarter
Emphasis has also been placed on
the importance of building a more intuitive tool that offers users vital
information while they work their way through CEST’s questions. You imagine
that the idea behind this is to better educate engagers on certain aspects of
the IR35 legislation in order to help them input all the information correctly.
The OTS report explained that HMRC
is considering building “embedded data” into the tool, which would
include information boxes and pop-ups at certain points where people might need
further explanation.
While, on the face of it, the
suggestions made by the OTS seem like small tweaks, anything that can assist
engagers when administering IR35 is positive news - particularly for
contractors, who largely distrust CEST.
According to Kathryn Cearns, OTS
Chairman, the tax needs of the UK’s small businesses are a priority for this
government department, which is independent of HMRC:
“Small
businesses – of which there are millions - are a core concern and area of
interest for the OTS, so it is pleasing that this is the subject of the first
OTS report published since I became Chair.
“The long-standing
concerns highlighted, about businesses avoiding mistakes as they get going, the
workings of the PAYE system and the priority given to the role of agents, are
not easy things to improve quickly. So it’s all the more important that the OTS
continues to highlight these issues.”
Discover more about IR35
Whilst we wait for these improvements to the CEST, why not
get clued up on the IR35 legislation yourself? We’ve put together a hub of IR35
resources to help you understand the intricacies of IR35. Visit our IR35
resources section to discover more about
IR35.