PAYROLL INSIGHT
IR35 and the CEST tool – the saga continues
Peter Minchinton, employment taxes senior manager at PSTAX , reveals changes that have implications for those relying on the tool’s outcomes
F ollowing the ‘success’ of IR35 in the public sector, off-payroll working is to be extended to the private sector from 6 April 2020. Although the public sector has lived with off-payroll working for a few years, this is no time to be complacent as there are changes afoot to the rules that will also impact on the public sector. Compliance End-clients will need to implement processes to comply with these proposals, which are summarised below. ● ● HM Revenue & Customs (HMRC) will explore enhancements to the check employment status for tax (CEST) service and associated guidance which will be available to use before the reform comes into force from 6 April 2020. This would require training and updating of internal policy materials. Previous status checks via CEST might be incorrect in the context of the new guidance and would have to be reconsidered. (See Changes to the CEST tool, below, setting out details of certain changes that have already been made.) ● ● The legislation will require engagers to provide a status determination statement directly to workers they engage, as well as the party they contract with, giving off-payroll workers enough certainty over their tax position and their obligations. Engagers will need to implement processes to comply with this requirement. ● ● With regard to the status determination statement the new legislation incorporates section 61N(a) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), as set here: (1) For the purposes of section 61N ‘status determination statement’ means a statement by the client that (a) states that the client has concluded that the condition in section 61M(1)(d) is met in the case of the engagement [within IR35, (writer’s
addition)] and explains the reasons for that conclusion, or (b) states (albeit incorrectly) that the client has concluded that the condition in section 61M(1)(d) is not met in the case of the engagement and explains the reasons for that conclusion. (2) But a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned in it. ● ● The legislation extends the existing provisions to provide an effective mechanism for the liability to tax and National Insurance contributions (NICs) to be passed down the labour supply chain from one party to the next. ● ● The legislation requires that all recipients of a status determination must pass it on to the next person in the contractual labour supply chain to ensure that fee-payers who are farther down the chain have the information they need to comply with the rules. ● ● Where the fee-payer or worker has not received the reasons for a status determination the legislation will provide the off-payroll worker the right to seek them from the engager. ● ● There will be a framework for resolving disagreements over employment status decisions for off-payroll workers. However, this might involve end-clients in complicated and time-consuming dispute resolution. The legislation will allow a process allowing for status determinations to be challenged based on a set of requirements set out in the revised legislation at section 61T of ITEPA. This means that if the worker or the fee-payer disagrees with the determination that has been made then the end-client must review the facts that caused that determination to be made and confirm or revise the determination as necessary. This must be done within 45 days of the request from the worker.
If the end-client confirms that determination, then the end-client/fee- payer must continue to account for tax and NICs. There is nothing apparent in the new legislation that gives the worker or the fee-payer any grounds for appeal against a confirmed determination during the tax year. Changes to the CEST tool Although the CEST tool will be updated for April 2020 we know that the tool has changed several times since its inception. For example, the substitution question changed from a positive response (to establish a lack of personal service) to a negative response (“No, we would always accept a substitute…”). More work has been carried out on the tool lately to make it much more likely to conclude an ‘in scope/employed’ outcome. A summary of the obvious changes follows. ● ● Office holder – The tool has added an exclamation mark with the comment “If you are not sure if these things apply, please ask your management about your organisational structure”. ● ● Personal service – If referencing an engagement that has already started, the tool now offers three potential responses to the question “has the worker’s business arranged for someone else to do the work…”. They are “Yes, and we agreed”, “Yes, but we did not agree” and “No, it has not happened”. m If the first response is selected, the tool misses out the ‘right to reject’ question and goes straight to the ‘who pays the substitute’ question. If the worker’s business has paid the substitute, the tool confirms an ‘out of scope’ outcome. m If the second response is selected, the tool also skips the ‘right to reject’ question and moves straight to the ‘worker using a helper’ question. This suggests a view by HMRC that, if the end-client does not agree a substitute, then it must always be personal
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| Professional in Payroll, Pensions and Reward | October 2019 | Issue 54
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