• The CEST tool and how to decide if IR35 applies

    By Andrew Chamberlain
    Political Correspondent

    Andrew is the deputy director of policy at IPSE

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    What advice would you give to someone who is negotiating a new contract and the client has used the CEST tool and determined them to be inside IR35, but they disagree?

    The dreaded CEST tool has caused a lot of a great deal of consternation for contractors since it was introduced in 2017. You don’t just have to take my word for it. Enter ‘CEST criticism’ into google and you will find plenty who believe the tool is hopelessly flawed. Unfortunately, HMRC continue to steadfastly stand by it, which makes it attractive to public sector clients looking for an easy way to ‘comply’ with their IR35 responsibilities.

    If the client, having used CEST, has decided IR35 applies, it means tax will be deducted at source, as it is for employees. You also won’t be able to claim expenses in the same way. All this means more of your money will go to the taxman than it would if the role were deemed to be outside of IR35. Under these circumstances you have a few options.

    • Negotiate a higher day rate to make up for the additional tax burden.
    • Negotiate on who should pay the employers NI – your argument is it should be the client. This is option is tricky when there is a complex supply chain involving agencies and umbrellas.
    • Present the client with an alternative view of the IR35 status of the engagement. If you believe IR35 shouldn’t apply, explain why. You may want to arm yourself with an independent contract review and a review of the working practices to back up your claim. The problem is that even if you are entirely right and have the evidence to back it up, the client may not be prepared to listen and is under no obligation to do so.
    • Ask for employee type benefits. If the client is saying they’ve looked at the nature of the engagement and decided that it is more consistent with employment than self-employment it raises the question – shouldn’t they be looking for an employee? Or at least giving you holiday pay.
    • Turn down the contract. This is the nuclear option and you could be cutting off your nose to spite your face, but if you firmly believe the engagement is freelance, and you proudly see yourself as a freelancer, there is really is no justification for you being taxed as an employee.

    For now, only public sector clients have to make IR35 determinations. Unfortunately, the government intends to change that and bring the private sector rules in line with the public sector from April 2020.

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