HMRC data shows CEST ‘undetermined’ outcomes still hitting one in five

HMRC has failed to improve CEST’s indeterminate rate, leaving all hope with version 2.0 – which is scheduled for the autumn, ContractorUK has learnt.

In fact, the Revenue’s IR35 tool is running at an indecisiveness rate of 22%, equating to more than 278,000 ‘undetermined’ results out of a total 1.3million, says Kingsbridge.

The company used freedom of information rules to force the tax department to release CEST usage data between September 2021 and June 2023.

Fifty-four per cent of CEST results over the period emerged as outside IR35 (679,820); 24% as inside IR35 (299,131), and 22% as undetermined (278, 620).

‘In limbo’

In light of its indecision now being almost as likely as ‘inside IR35’, CEST leaves clients, agencies and contractors “in limbo”, Kingsbridge’s Ryan Dawson told ContractorUK.

He observed CEST was unable to decide 15% of the time at its launch in 2017; before rising to 19% and then, after a 2019 update by HMRC, it rose further -- to 21%.

Dawson isn’t therefore sure that CEST’s autumn relaunch (which ContractorUK understands is HMRC’s aim), will reduce today’s 22% indeterminate rate; it may even do the opposite.

‘Too slow taxman’

Yet his pessimism isn’t related to accreditation body Professional Passport having its call to Jeremy Hunt to withdraw CEST, made ahead of Budget 2023, totally ignored.

“HMRC has really been just too slow to act on CEST,” Dawson explains. “Autumn 2023 [when the chancellor’s next statement is due] will be almost four years from the 2019 update.

“And still today, in July 2023, the same issues and problems [with CEST] prevail, compared with when the IR35 status-testing tool was first launched in March 2017.”

‘A very different CEST – and soon’

IR35 advisory Bauer & Cottrell says the Revenue wants to wait until the Autumn before it updates CEST, as by then it should have clarity from the courts.

“My inkling is that HMRC is awaiting the definitive outcome of the long-running PGMOL referee status case,” the advisory’s Charlie Hemsworth said in a statement to ContractorUK.

“PGMOL was heard in the Supreme Court in June, and so we await what is a highly anticipated decision on Mutuality of Obligation, which is controversially ignored by CEST.

“Depending on the outcome, we could all be looking at a very different CEST -- and soon. So as an engager, I would be questioning what this means for all historical determinations made using CEST version one, let alone what happened with any ‘undetermined’ CEST determinations.”

‘278,000 contractors in the dark’

Hemsworth says a positive of HMRC “working hard to improve CEST” (as ABAB said in December 2022), should be new, written taxpayer “assistance with undetermined results.”

Yet the department is understood to believe that any rise in ‘unable to determine’ results is due to the type of engagements now being undertaken and entered into CEST.

IR35 contract review firm Qdos says HMRC should acknowledge that its technology leaves 278,000 contractors “in the dark”.

“[But] I’m not surprised”, the firm’s CEO Seb Maley said, pointing to the more than one in five CEST users being lumbered with 'undetermined.'

‘Fundamentally flawed, important’  

Mr Maley added: “Since it was introduced in 2017, HMRC has promised to improve what is, in reality, a fundamentally flawed IR35 tool.

“Yet six years later it still falls well short of what is required to accurately assess IR35 status. [And yes] CEST 2.0 is expected in the not-too-distant-future. But I can’t say that I hold out much hope that it will be better equipped to assess status than this version.”

An HMRC spokesperson told ContractorUK: “CEST is an important tool that provides determinations which HMRC will stand by, provided the information is accurate and the tool has been used in accordance with our guidance.”