CEST and IR35 contracts

Determining your IR35 status as a contractor

If you are a contractor and operate through a limited company in the UK then you will have heard of the off payroll working rules (commonly referred to as IR35) that determine whether or not you are an employee for tax purposes. Under the current rules, public sector clients and large firms are responsible for determining the employment status of contractors, whereas if you are contracting for a small business the liability lies with your own company as the contractor.

Even if you are not legally responsible for determining whether or not you fall inside IR35 it still is prudent to check yourself that your Status Determination Statement (SDS) is accurate and raise any questions you may have with your end client. One way to check your IR35 status is by using the CEST tool as well as checking with your accountant.

What is Check Employment Status for Tax (CEST)?

Check Employment Status for Tax (CEST), is an online tool developed by HM Revenue & Customs to help individuals determine if their engagement with a client falls inside or outside the scope of the off payroll working rules. It is designed to assist both hirers and workers in understanding whether a worker should be classified as employed or self-employed, based on HMRC’s view. Using CEST in conjunction with advice from Sherwin Currid’s accountants will give you peace of mind that you are not only operating tax efficiently but also remaining compliant.

CEST takes into account various factors such as the type of engagement, contract details, and the nature of the work being performed. It asks a series of questions and provides a determination based on the answers provided. CEST is specifically tailored to assess a contractor’s status in relation to the IR35 tax legislation, which focuses on the taxation of individuals working through intermediaries.

CEST is one of many useful tools for individuals operating in sectors where the IR35 legislation applies, especially if you are a contractor working for a small business in which case you will have to determine whether you fall inside or outside the scope of IR35. It is important to note that CEST provides HMRC’s view on employment status based on the information provided. While it is a useful tool, it is essential to have evidence to support the answers given and we always advise you speak to an expert in IR35 and tax compliance in addition to using CEST.

Using CEST to help navigate IR35 as a contractor

Regardless of the length of time you have spent as a contractor, ascertaining exactly where your contract stands with regards to IR35 can be challenging. The introduction of the off-payroll working rules has created uncertainty and increased the need for proper assessment of employment status. By using HMRC’s check employment status for tax tool, contractors and hirers alike can build a clearer picture of their IR35 status and help ensure compliance with HMRC, especially when considering changes to contractual terms or working arrangements. Furthermore, HMRC say that they will stand by any determinations given by the tool, provided the information provided is accurate and truthful, which is reassuring for contractors looking to take on work as well as firms looking to determine their worker’s employment status.

Utilising CEST is one of the first ways that you, as a contractor, can check that your Status Determination Statement is correct and therefore ensure you are compliant with HMRC. If you are unsure about the determination you receive from the status tool, which may result in an undetermined outcome, then the best course of action is to speak to a specialist contractor accountant about your contract and they will be able to help you.

The risks of incorrectly determining your IR35 status

Misinterpreting your IR35 status can have significant consequences and may lead to you facing retrospective tax obligations and penalties. Similarly, if a hirer mistakenly classifies a contractor as self-employed when they should be considered an employee, they could be liable for unpaid taxes and national insurance contributions.

HMRC investigations can be costly and fines for non compliance can be very damaging to contractors if they incorrectly determine their employment status. This is why it is vital for contractors to check their contracts and raise any questions with the end client to ensure they are compliant with HMRC.

Using CEST in a Status Disagreement Process

If your IR35 status is determined by your end client then it is still often prudent to check yourself that they have made the correct decision, you can use the CEST tool as one way to check this and if the outcome of the tool is different to that assigned to you by your employer then it is your right to challenge their determination. Since HMRC will agree with the results of CEST, provided you have answered the questions correctly, it is a good idea to speak to your end client to ensure they have made use of the tool and that you both agree with the outcome.

How Sherwin Currid can help you with IR35?

At Sherwin Currid we have in-depth knowledge of IR35 and have been advising clients about it and its implications for many years. If you do not feel confident with the determination given to you by HMRC’s CEST or you disagree with your status determination statement then our team of experts can help you look at whether key determinants of working status such as mutuality of obligation (MOO), control, and substitution point towards you being self-employed or an employee. We can provide detailed guidance on how to navigate the complex factors of IR35 and ensure that you are paying the correct amount of tax.

Our team has a wealth of experience dealing with contractors across various industries and would be happy to have an initial consultation with you to introduce ourselves and how we can help you going forward. At Sherwin Currid we offer a wide range of services including personal tax, VAT, IR35 contract reviews, company formation and much more for contractors, regardless of if you are just starting out or you are a seasoned contractor looking for an accountant to take care of all your needs. For further information on our friendly, personal service please get in touch to arrange a meeting.

Frequently asked questions

Please get in touch if you would like to discuss this area with us further, we would be delighted to hear from you.