The CEST assessment is designed to determine your IR35 employment status. What can you expect to happen?
Here are the main factors:
- Control
If a client controls when, where and how you perform the tasks they assign to you, it suggests that you as a contractor do not provide any sort of specialist service and could be classed as an employee. You will need to demonstrate your autonomy in the way you work, to show that your client has no influence over the way you work and that needs to be shown in the way you complete the assigned projects and the contract you have with your client.
- Substitution
If your client can easily substitute another person to complete the tasks they have assigned you, then you may run into IR35 difficulties. This shows you're simply a team member and HMRC could easily class you as an employee in this case. Your IR35 friendly contract must include a substitution clause.
- Mutuality of Obligation (MOO)
This applies when your client expects you to complete work when asked to do so, and you have an expectation of constant, regular work with them. If both these criteria apply between you and your client then you could be classed as an employee. If you were self-employed, you would expect to be hired for a specific task with no expectation of further work after completion.
- Risk
An employee would rarely experience any financial loss from being employed. All the tools of the trade and personal protective clothing are supplied, your payroll is processed regularly and you have holiday and sick pay when needed. A contractor has to provide everything themselves and has no legal rights to any payments should they choose not to work or are ill and cannot complete the tasks the client assigns to them.
Of course, there are other factors to consider but the points I've outlined above are the heart of the matter. Other things to look at include:
- Are you paid hourly, daily or per project?
- Do you have access to benefits, facilities or events offered by the client?
- Do you only work for one client or do you have many on the go at the same time?
- Do you have a fixed notice period on completion of a project?
As my contractor tax clients have discovered, HMRC is really interested in getting as many CEST assessments completed as they can in the run-up to the changes in April 2020. Would HMRC class you as an employee following the test?
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.