HMRC’s CEST 2.0: Is it worth the wait? 

Previously, CEST has, in many cases, failed to give those affected by the off-payroll legislation the confidence that they remain compliant and won’t face unexpected tax and NIC liabilities should HMRC come calling further down the line and successfully challenge any outside IR35 assessments generated by CEST.

A lack of suitable questions, the fact it doesn’t address mutuality of obligations (MOO) and the data which confirms that it delivers ‘undetermined’ results of 20% of users are some of the reasons given that support the mistrust of CEST. The concern is also backed up by the fact that several government departments had relied upon CEST to their detriment, having their CEST assessments overturned by HMRC and culminating in combined tax and NIC liabilities totalling nearly £300 million.

In a move to address the many concerns, HMRC had promised to take another look at CEST and to make improvements where necessary. Any changes made were expected to still be in accordance with HMRC’s view and understanding of the off-payroll legislation and case law.

"From what we have gathered, CEST has been moved onto a new operating platform called OCELOT with the intention to make CEST more user friendly"

However, after months with nothing to report, many believed that HMRC’s promise had been swept under the carpet. Until 2 October 2023 when CEST 2.0 arrived - but not in its entirety. Instead, HMRC will be releasing the new CEST in phases.

From what we have gathered, CEST has been moved onto a new operating platform called OCELOT with the intention to make CEST more user friendly. The idea is that it will make it quicker for the user and will also allow them to amend their answer’s input into CEST after each question set i.e., personal service, control, financial risk etc, rather than at the end. The final CEST opinion will provide an inside/outside indication for each question set so that users can see exactly which areas have contributed to support the overall decision.

Another notable change is that HMRC’s Employment Status Manual (ESM) has been embedded into CEST, allowing users to access its content immediately for guidance, rather than having to go to a separate part of the HMRC website.

Phase 1 is focused on improving usability, but it is important to note that CEST’s questions, and HMRC’s reasoning behind those questions, has not changed. We understand that phase 2 will contain the real detail, in terms of potential new questions and possibly the inclusion of MOO. At the time of writing, there has been no firm indication provided by HMRC as to when we can expect phase 2.

However, it is likely that HMRC have delayed their full roll out of CEST 2.0 due to the Professional Game Match Officials Ltd case, which was heard at the Supreme Court, with the final judgement due anytime soon. The case concerns the employment status of football referees, and has a heavy focus on MOO, therefore the outcome of the case could re-shape HMRC’s understanding of this key status test.

Should HMRC finally address MOO correctly, it then begs the question, how does this impact past inside IR35 decisions produced by CEST, where had MOO been addressed previously?

Interestingly, some further data has emerged regarding CEST outputs and usage, the 20% of undetermined results has now increased to 23%, which is concerning, combined with the fact that there has been a drop by 3% in the number of contractors using CEST.

So, while the changes to date are a welcome starting point, those considering using CEST should continue to tread with caution. Detail continues to be key – until the complete version is released, we can’t be sure if CEST 2.0 can be used with confidence to produce accurate IR35 and status assessments.