CEST vs Manual vs SHIELD
Short for Check Employment Status for Tax, CEST is a free tool designed by HMRC. Its purpose is to help those affected by IR35 ascertain whether a worker on a specific engagement should be classed as employed or self-employed.
Thanks to the reform shifting the responsibility from contractor to end client (and agency), CEST is becoming a saving grace for businesses.
Or is it? As plenty of commentators have already noted, CEST is far from flawless. In fact, in some instances it’s actually proving to be muddying the waters ahead of 6th April.
So, to help clarify the benefits of CEST and where it stands against both manual review and our own solution, we’ve broken down each of the available options.
The trouble with CEST
It’s free and accessible, so why wouldn’t you use it? Well, firstly because HMRC can decide at any point that they don’t agree with the outcome. While it was reported in October 2019 that HMRC lost a tribunal against an IT consultant for ignoring a CEST assessment, future cases may not be so lucky.
Secondly, CEST ignores Mutuality of Obligation (MOO) in its decision-making process. MOO refers to an obligation by the client to provide future contract work and an obligation by the contractor to accept it. Of course, part of the challenge of self-employment is that contractors aren’t always certain that further work will exist.
As there is no fixed legal definition of MOO, it’s largely determined by case law. As a significant factor of determining a contractor’s status, it is concerning that CEST assumes mutuality exists in every working arrangement – as this is proven not to be the case.
Finally, and perhaps most importantly, CEST only issues ‘outside IR35’ status when considering one area in isolation. The software employs a five-room approach that leads towards a final judgement – and is far different to the process used by the courts. If any room (Substitution, Control, Financial Risk and In Business On Own Account) determine a contract as ‘outside IR35’, it still proceeds to the next section – enforcing unreasonably high standards and contrary to the law.
Manual isn’t perfect either
As the CEST tool is non-mandatory, you’re welcome to manually assess each and every contract yourself instead. Of course, the downside of manual assessments is the time it takes to evaluate all your contractors ahead of the 6th April deadline. Frankly, most organisations affected by the IR35 reform won’t have the relevant expertise in-house to do this in time.
In fact, the risk of attempting to perform contract assessments manually in such a small timeframe increases the likelihood of mistakes. You’ll also need to regularly assess contracts after the reform as your needs – and the needs of your contractors – change.
But what’s the alternative? A faulty system with limited authority in regard to HMRC’s judgement? Hence why a number of businesses are preparing to enforce a blanket ban putting all contractors under PAYE. Despite a large number not being an employee by nature, businesses are protecting their own interests in saying otherwise.
In this case, many contractors are likely to move roles or to more beneficial organisations. For agencies, neither solution works in your interest.
How SHIELD can help
The real solution lies in a blend of manual evaluation and advanced analytics. SHIELD is just that. Scalable and intuitive, SHIELD is AI-driven and delivers the same status you would receive in a judge’s ruling on an IR35 case.
It will even demonstrate the costs of each option, helping inform your decision should you prefer to avoid judging contracts on a case by case basis.
While the benefit is perhaps more obvious for businesses, contractors can use our solution as a means of negotiating their IR35 status with their clients. From an agency perspective, you’re now capable of managing assessments, generating reports and model financial scenarios on behalf of your clients. Therefore, increasing your value to them and solidifying yourself as recruiter partner of choice.
Not only will you be able to avoid using a solution that could be deemed incorrect following 6th April, but you’ll also retain your appeal to contractors who would otherwise find work elsewhere.
Want to secure your bottom line with the most secure IR35 solution on the market? Get in touch on IR35support@workrgroup.com today.