• Mel Stride, The Financial Secretary, Claims Accuracy of the CEST Tool Despite Criticisms Sep 18, 2018
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    Financial Secretary Mel Stride had responded to criticisms relating to the Check and Employment Status for Tax (CEST) tool. The response was given in the House of Commons last week. The message was not unlike the one is given by HM Revenue and Customs (HMRC) that there is nothing wrong with the tool.

    According to Mr. Stride, the CEST tool was tested rigorously during the development stage in accordance with the data standards of the government. It was built after getting input from the external shareholders. The accuracy of the tool was checked as part of the process and the results have been verified by HMRC against settled cases.

    In addition, Mr. Stride also stated that HMRC will consider results of CEST as valid given the information entered is in line with the guidance. He said that the tool gives the right results in 85 percent of the cases. In case of a dispute, contractors can contact the dedicated helpline that is staffed by HMRC to provide further guidance.

    The Reality of HMRC’s CEST Tool
    The reality is that following guidance of HMRC is not as easy as it seems. There are no instructions as to how to know whether the guidelines are followed when using the tool.

    The most important criticism regarding the CEST tool is that it ignores the Mutuality of Obligation (MoO). HMRC has used the wrong assumption that MoO is present in every contract, which is not true.

    For instance, in the First Word Software V HMRC case in 2003, it was noted by the Special Commissioner that Mr. Atkins would not be given other jobs once the Project Leapfrog was completed. Evidence shows that when the project is complete, the arrangement will have terminated. The MoO must be present for a contractor to be deemed as an employee.

    Of the three key employment tests viz MoO, control, and substitute work, CEST tool only considers the last two. MoO is totally ignored resulting in wrong assessments.

    Moreover, CEST has not been tested in recent cases as suggested by Mr. Stride. The latest case the CEST tool has been tested was heard in 2011 relating to ECR Consulting Ltd.

    HMRC has not clarified why it has considered only certain tax cases, and not against significant cases such as Jensal Software and MDCM Ltd or CAM Ltd. Perhaps it may be because testing the tool in such cases would provide information that HMRC does not want the public to know.
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