IR35: HMRC completes first phase of CEST upgrades with Ocelot platform migration

HM Revenue & Customs (HMRC) has up to date the platform underpinning its IR35-related Check Employment Status for Tax (CEST) instrument, claiming the change will enhance how customers work together with the service.

The authorities tax assortment company confirmed to Computer Weekly in a quick assertion that CEST had been “successfully moved” to a brand new platform on Monday 2 October 2023.

The platform in query is known to be an in-house developed setup known as Ocelot, which is billed by HMRC as “enabling the rapid production of interactive guidance” to make instruments like CEST simpler for end-users to navigate.

Where CEST is worried, the Ocelot migration means data from the HMRC Employment Status Manual (ESM) is now embedded within the instrument, providing additional steerage on the way it works, with out customers needing to open one other window to entry it.

According to a steerage paper printed by the Office of Tax Simplification (OTS) in April 2021, Ocelot is taken into account one thing of a hit for the HMRC in-house improvement staff, because it has additionally been rolled out internally to The Valuation Office Agency and the Border Force.

“Having seen the benefits of using this software internally within HMRC, the guidance team developed the software to deliver interactive guidance through Gov.uk, and since autumn 2020, the software is considered where a user need for interactive guidance is identified on Gov.uk,” the OTS doc said.

Computer Weekly understands the migration to Ocelot is the first of a two-phased revamp for CEST, which has been topic to repeated criticism since its launch in lead as much as the general public sector reform of the IR35 guidelines in April 2017.

The instrument was launched to assist public sector organisations cope with the extra administrative burden the reforms positioned on them, because the modifications made end-hirers chargeable for figuring out the employment and tax standing of the contractors they interact.

CEST poses a sequence of questions that end-hirers should reply about any contractors they interact to find out whether or not or not the work they do and the way it’s carried out means they need to be taxed in the identical approach as everlasting staff (inside IR35) or as off-payroll staff (exterior IR35).

Before the reforms got here into pressure, contractors had been chargeable for figuring out their very own tax standing, which is a system HMRC claimed was being deliberate misused by some contractors to artificially minimise how a lot employment tax and National Insurance Contributions (NICs) they must pay.

The second phase of enhancements to CEST will see updates made to the questions that CEST makes use of to find out how contractors needs to be taxed.  

Rebecca Seeley Harris, an impartial authorized marketing consultant who specialises in employment and tax standing points, instructed Computer Weekly HMRC’s phased method to updating CEST “seems very sensible” and the migration to Ocelot ought to make the improve simpler to do general.

“Changing the questions is going to take time and understanding, but being on the new platform will no doubt make it easier to make the changes when they happen,” she stated.

 “CEST is used by a lot of clients, usually as part of a wider assessment, but these changes will hopefully make the tool more useable. I would never advise that CEST is used in isolation as the only point of assessment, but it is a useful part of the overall assessment. This is especially because it is an indication of HMRC’s thinking on status.”

She added: “As I understand it, HMRC are keen to reduce the ‘unable to determine’ percentage, so the changes to the questions will hopefully have an impact on that.” 

However, Dave Chaplin, CEO of IR35 compliance agency IR35 Shield, instructed Computer Weekly the updates to CEST quantity to an “interim release” as a result of “nothing has materially changed” with the instrument.

“The main visible change is that instead of summarising all the question answers at the end, they are done in stages at the end of each section. In my view, that’s more confusing and not a useability improvement,” he stated.

“HMRC had been signaling that its tool would include embedded guidance, but all they’ve done is put links to the ESM guidance. It’s hardly embedded. Regardless of the changes this week, the same major problem with CEST remains – it is misaligned with the law.”

To emphasise this, Chaplin pointed to the Atholl House April 2022 Court of Appeal resolution that confirmed that “all relevant factors” have to be taken into consideration when ascertaining employment standing and that this have to be a “multi-factorial” willpower.

“With CEST, ‘outside IR35’ determinations are handed out using a single-factor determination, which exposes firms that use it,” he added. “HMRC has repainted CEST’s bodywork, but the underlying decision engine is broken.”