Are You Prepared for HMRC’s IR35 Changes in 2023?

HMRC is rumoured to be ramping up IR35 activity with 'CEST 2.0' on its way. The IR35 experts discuss...

March 7, 2024

Rumours are circulating that HMRC are testing CEST 2.0, an improved version of the HMRC’s Check Employment Status for Tax tool which has come under intense scrutiny over its effectiveness. According to experts this is long overdue, given businesses are losing money (during an already financially-challenging time) as a direct result of the rules which CEST tests for. However, there is still scepticism around how effective this new version will be. 

Ryan Dawson, Kingsbridge Insurance’s IR35 Project Manager and expert says “the Administrative Burden Advisory Board confirmed that HMRC are "working very hard to improve" CEST for only the second time since its introduction in 2017. However, I’m sceptical on how far this will go towards fixing CEST, if at all. Its last update in November 2019 increased the number of ‘indeterminate’ results to 21%, an increase from 19% prior to the update.” 

According to the Employment Lawyers’ Association, “it is generally considered that CEST applies a higher standard to demonstrate self-employment than is true of applicable case law.” As a result, there is a perception that CEST is predisposed to classify contractors as employees.

Dawson goes on to say “Disproportionate inside IR35 or indeterminate results will naturally increase costs. That could be additional payroll costs, day-rate increases or consultancy from businesses like Worksome or Kingsbridge to help determine status where CEST can’t.”

I would encourage any business using CEST to consider their position, given the mounting compliance issues highlighted in the public sector. Employment status isn’t easy but with the right guidance, status tool, consultancy and risk mitigation, experts can hold your hand to safely and compliantly navigate the risks associated with off-payroll working.

What’s more, public sector fines have already exceeded £250m due to their mismanagement of CEST. This will no doubt put pressure on private sector firms wanting to avoid a similar outcome.

Rumours of HMRC stepping up its IR35 activity are pacing, and many believe they will be keeping businesses on their toes - by carrying out more compliance checks,ensuring IR35 compliance obligations are being managed correctly.

Ray Walker, Worksome’s Contingent Workforce Compliance Director states: "2023 is likely to prove a critical time for all users of off-payroll talent. As we approach the private sector reforms second anniversary I expect HMRC will show signs of increased audit activity. It is safe to assume they will be looking for a very big but easy win as a first case. If proved true, those companies with robust processes in place will likely move outside of their immediate radar."

One thing we did learn from the IR35 off-payroll repeal U-turn and the turbulence that followed was that IR35 legislations are here to stay and it’s imperative to have a robust compliance strategy in place for the coming year. 

Watch what our experts had to say in our recent webinar: "Are You Prepared for HMRC’s IR35 Changes in 2023?"