HMRC admits CEST cost £1.8million, and upwards

The online Check Employment Status for Tax tool developed by HM Revenue & Customs to test contractor IR35 status – with notoriously mixed results -- has cost taxpayers £1.8million.

Some £1.1m was spent to test and develop the enhanced tool of 2019; £110,000 went on it its six-month launch; further to £610,000 to build the first CEST, and £21,500 to maintain it.

Released by HMRC under freedom of information rules, the figures apply only up until February 2019 (build and maintenance), and September 2019 (test, launch, develop enhancements).

'Looks like CEST is costing millions'

Despite HMRC not disclosing CEST costs since September 2019 to April 2021, when the tool would be under greater strain, even just the costings for a little over half of its lifetime show that it is pricey enough.

“It looks like CEST is costing millions,” says IR35 expert Kate Cottrell. “The costs are ongoing and while it cost £632,000 as of Feb 2019, that price tag has some big exclusions.

“For instance, it omits the cost to HMRC of all the webinars, guidance, meetings and staff time. Oh, and the department claims it can’t identify the amounts paid to CEST contractors!”

'Not possible to identify CEST contractor spend'

In line with the Bauer & Cottrell co-founder’s quip, the department says the “collaborative and cross-cutting nature” of CEST (as a piece of development work) prevents it from being able to pinpoint contractor spend.

Specifically, in the FoI release pertaining to CEST (which was first unveiled for usage in March 2017), HMRC states that it is “not possible to attribute the associated spend on contractors to any one project.”

One contractor reflecting on its £1.8m price tag believes that any sum to make CEST available for people to use is too much, if it goes beyond a gesture, because very few use it.

'Surprised'

“I’m surprised that anyone other than contractors use the tool,” the cyber security expert posted.

“The clients I’ve worked with over the last few years….[and] all of the big banks in the UK, appear to [shun CEST and] have one of the ‘Big 4’ firms do the determinations [instead].”

Declining to be named, a former tax inspector said it would be “interesting” to know how much individual firms have forked out to build their own IR35 status testing tools.

'Eye-watering sum'

“[Firms] won’t tell you for commercial reasons, but it will be a fraction of the eye-watering sum spent by HMRC and HMT thus far,” the ex-official said. “Taxpayers’ money of course.”

At the dawn of IR35 reform, CEST usage was theoretically at a high level -- before its shortcomings were known, and helped on by HMRC initially calling the tool the “main way” to test IR35 under the reform.

Reflecting on that period, Qdos updated its followers last week: “We asked some firms, 40% of whom said if they were given the opportunity they would consider doing things [with IR35] differently.”

The status advisory added: “[Similarly] 29% of businesses are already reviewing their strategy for IR35 reform and expect it to change in time.”

'Useful, with limitations'

Also speaking before its £1.8m price tag had been disclosed but in a direct statement to ContractorUK, tax advisory Crowe UK said: “CEST is useful, but it certainly has its limitations.”

“Including not incorporating all relevant [IR35 status test] factors that it should [for example]. And…[CEST] can sometimes return an ‘unable to determine’ result.”

Detailed in the FoI release, the indecisiveness of the tool is one potential reason why last night an adviser to contractors said CEST fails the ‘value-for-taxpayer-money’ test, and more than just that potentially -- fails it “maybe out of all sensible proportion to the anticipated extra tax and NIC that the IR35 reform itself is actually generating."