From 6th April 2021 IR35 tax legislation was imposed in the private sector to stop individuals avoiding tax through ‘disguised employment’.  In other words, preventing individuals from setting up as a limited company but still providing their services to a company that if hired directly would be subject to the same Tax and National Insurance contributions as employees. 

Under IR35 if you are the client receiving services from a worker through their intermediary, you as the client became responsible for making an assessment of the working relationship between the client and the individual worker to determine that if there was no intermediary would the status of the worker be that of an employee of a self-employed individual for tax purposes.

The client is therefore obliged to determine a worker’s status to determine whether they are employed or self-employed for the sole purpose of establishing Tax contributions.  HMRC have updated their own Check Employment Status for Tax (CEST) online questionnaire from which an end client can determine whether the individual falls inside or outside of IR35 for taxation purposes.

While HMRC provide this tool, it is not a requirement that businesses use the CEST tool as there are other tools on the market that can be used to determine a worker’s status. 

How Effective is the CEST tool?

The tool can be used by the worker or the client and can leave room for user interpretation.  In the period between 25 November 2019 and 31 August 2021 just over 20% of CEST tool outcomes were ‘Undetermined’, leaving the user to follow the detailed guidance and support documents. 

In September 2018, HMRC compared the results produced by applying the tool with tribunal decisions and found that of the 24 cases, the tool returned the same result except in two cases, where the tool determined that the individual was employed but the tribunal determined the individual was self-employed.  The CoA in Atholl House and Kickabout appeals reviewed the authorities in respect of determining employment status.  HMRC succeeded in both cases.


The CEST tool is often criticised for not properly considering mutuality of obligation (MOO) and HMRC’s position is that MOO is present in all engagements as by its very nature there is a contractual obligation for the provision and supply of work.

The CoA’s decision in the two cases of Atholl House and Kickabout is to follow the three-stage test in Ready Mixed Concrete when determining whether an individual’s status is that of an employee.

The CoA in Atholl House and Kickabout appeals reviewed the authorities in respect of determining employment status and the judgments set out the correct approach to Judge MacKenna’s three-point test in the case of Ready Mixed Concrete v. Minister for Pensions [1968] 1 All ER 433:

 [i] The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.

[ii] He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.

[iii] The other provisions of the contract are consistent with its being a contract of service.

When determining whether an individual’s status is that of an employee, the first two test factors; mutuality of obligation and control could indicate an employment relationship is in existence but without the third limb being satisfied first two limbs will not confirm employment status in isolation. The client will need to make a multi-factorial assessment, under the third-limb of the Ready Mixed Concrete test to determine whether an employment relationship exists.

Perhaps the main lesson to all Contractors is that the contract should be considered to ensure the terms reflect the reality of the working practices and that the contract itself is factual without ambiguity.

Talent Toute with Consilia Legal

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