The return of IR35: How long are CEST results valid for? | Fieldfisher
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The return of IR35: How long are CEST results valid for?


United Kingdom

With delayed reforms to changes in off-payroll tax rules looming, Fieldfisher tax specialist Matthew Sharp considers the risks of relying on old results after a year of major workforce upheaval due to Covid-19.

Changes to off-payroll tax rules are due to come into force on 6 April this year.

Having been postponed just weeks before the 2020 deadline because of the Covid-19 lockdown, many businesses and contractors will be tempted to dust off status determinations received in the run up to last year's implementation date.

But after a turbulent year for many businesses and their workforces, the return of IR35 has caused confusion and concern about whether they need to repeat the exercise of assessing tax status.


HMRC guidance states that:

"HMRC will stand by the result produced by [CEST] provided the information is accurate and it is used in accordance with our guidance."

However, there is little clear information on how long a CEST determination remains valid. The guidance states:

"Where there are subsequent material changes to contractual or working arrangements, the information originally provided may no longer be accurate and HMRC will not stand by the original outcome. HMRC would recommend that you complete CEST again to consider the new arrangements."

For a large number of businesses and contractors, the events of the past year will have necessitated changes in contractor relationships. For others, little or nothing will have changed, bar the passage of time.

But is time elapsing a 'material change' in and of itself? HMRC guidance states:

"…in general, the longer the engagement the more likely that it will be a contract of service and the shorter the engagement the less likely."

While guidance recognises time is unlikely to be determinative of status, it is clearly a consideration.

Consequently, most advisers recommend CEST results are reviewed periodically (every six months, for example) and/or whenever there are 'material changes' to working arrangements.

Material changes

Many business requirements and the way workforces operate have fundamentally changed as a result of Covid-19 restrictions.

Regarding the issue of 'where work is done', HMRC guidance states:

"Where a worker can carry out work wherever he wishes, the contract is more likely to be a contract for services (self-employment)."

During lockdown periods, when all workers who were able to "work from home" were ordered to do so by the government, the persuasiveness of a worker being able to carry out their work "wherever he wishes" is potentially less influential as an indicator of self-employment.

In an indirect nod to the circumstances created by Covid-19, HMRC guidance states:

"Working practices are becoming more and more flexible and many employees now work from home. You should not accept that a worker is self-employed just because he or she does not work at the engager’s premises."

Post-Covid-19, HMRC is likely to pay close attention to remote working arrangements. Provision of home working equipment by an engager, for example, or allowances for such equipment, are likely to be held against contractors seeking to argue they are genuinely self-employed. 

HMRC guidance is clear that "where the engager covers any expenses that the worker incurs as a result of working out of the office", this is likely to indicate 'employed' status.

However, for many personal service companies (PSCs), the complete absence of meaningful financial support during the Covid-19 crisis is likely to be a factor indicative of self-employment.

While MPs have pushed the government to reassess support for PSC workers, this has been an extremely difficult time for such contractors, who have fallen between the CJRS and SEISS support schemes.

On this issue, HMRC guidance states:

"A strong indication of self-employment can be the financial risk which the worker runs in doing the job. In general terms, the greater the financial risk the stronger the pointer towards self-employment."

Where contractors have received no financial support from engagers during the pandemic, and have seen their incomes hit as a result of a short working or periods without work, this clearly points towards self-employment and a 'material change' that will have to be taken in to consideration in new status assessments.

CEST validity

So can engagers and workers rely on old CEST results, even if the engagement is seemingly unchanged?

In general, relying on old CEST results carries significant risk. Any engagement that has continued for over 12 months uninterrupted may, in and of itself, be a status red flag for HMRC.

It seems unlikely that many contractor engagements will have continued without any 'material changes' – either positive or negative.

HMRC has demonstrated in previous tribunal cases that it will seek to distinguish CEST results when this suits its purposes. Relying on a CEST result that is more than 12 months old may therefore expose engagers and their workers unnecessarily.

Start again?

Irrespective of the upheaval in the working environment during the pandemic, there have been very few changes to CEST since the delay to IR35 reform in March 2020.

As a result, a significant proportion of CEST results, if reassessed today, are unlikely to differ from previous determinations.

In these circumstances, where there have genuinely been no material changes to an engagement, businesses may simply want to undertake spot checks to ensure old status assessments yield the same results.

For others, the safest course is to repeat the exercise. This should involve:
  1. Reviewing status data. Has this changed and how?

  2. Engaging with your off-payroll workforce. Do they believe there have been material changes to their engagements?

  3. Repeating the formal assessment process. Whether using CEST or another form of status assessment, the determination process should be repeated.

  4. Finally, results obtained by an engager should be confirmed again to off-payroll workers. To demonstrate the highest levels of compliance to HMRC, it is advisable to re-issue Status Determination Statements where appropriate.

This article was authored by Matthew Sharp, dispute resolution senior associate and tax specialist at European law firm, Fieldfisher.

A version of this article was first published by ContractorUK.

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