Taxman translates what he means on CEST by ‘make…’ and ‘check…’

HMRC has clarified that CEST users ‘make a determination’ if they are PSCs at firms under IR35 of 2000, but usually ‘check a determination’ as PSCs under IR35 of 2017 or 2020.

Selecting ‘make a determination’ is also necessary for PSCs using CEST to try to gauge their IR35 status under the incoming April rules where they provide services to a ‘small company.’

This thinking by the Revenue – that PSCs select ‘make’ only if they themselves need to decide status under the ‘old’ IR35, had to be extracted from the department to clear up confusion.

It was raised by the ICAEW which, thanks to HMRC’s replies, can now assert that for public PSCs, or private ones at non-small firms from 2020, it must be ‘check a determination.’

That’s because it is the public client (since April 2017) or the mid-sized and large firm (from April 2020) who makes the determination, “so the [PSC] is checking it,” the ICAEW said.

Such PSCs are not making the determination themselves -- both the in-force and incoming reformed IR35 rules take that determination-making right away from them and pass it to the client.

To one top accountant who works exclusively in the contractor sector, it is “interesting” that HMRC moved to explain CEST so quickly. But, he implied, it’s also all rather obvious too.

“With regards to ‘Make’ and ‘Check’ the logic seems to make sense,” confirmed status adviser Rebecca Seeley Harris. “But, it’s a bit convoluted -- much like the rest of the legislation!”

Indicating that even it too shares the sense of labyrinth, HMRC is now considering “rewording” parts of CEST so the user can “select the sector that the client is in,” the ICAEW said.

The accounting body’s Tax Faculty said: “[This rewording would be preferable,] rather than have to understand HMRC’s interpretation of the meanings of ‘Make…’ and ‘Check.’

In the meantime, it might fall to experts on the legislation to explain to PSCs (and potentially some high street accountants too) what the HMRC explanations mean, and how CEST should be used.

Head of tax at WTT Consulting, Tom Wallace obliged: “The clarification offered [by HMRC] simply emphasises that contractors need to know who has responsibility for making the determination, and operating PAYE to use CEST effectively. “

In a statement, he also told ContractorUK: “[Contractors] therefore need to understand that if they are contracting in the public sector (and private sector ‘large’ or ‘medium’ organisations under the April 2020 proposals) then the end-client has responsibility for the status determination and therefore the only purpose for CEST for them is to sense-check that decision. 

“Where they are currently in the private sector (and continue to be in a ‘small’ private sector organisation post April 2020), then they [alone] are responsible for the status determination and making deductions under IR35. That knowledge allows them to select the correct options [on CEST] and produce output with the correct instructions.”