In a recent development, HM Revenue & Customs (HMRC) has introduced an updated version of its Check Employment Status for Tax (CEST) tool, marking a pivotal step in refining user experience. This milestone transition was officially confirmed on the 2nd of October 2023. The bedrock of this transformation is the in-house engineered platform named Ocelot, lauded by HMRC for its capacity to facilitate the swift generation of interactive guidance. This augmentation is poised to streamline user interaction with CEST.

This migration empowers CEST with embedded insights from the HMRC Employment Status Manual (ESM), eliminating the need for users to toggle between different windows for guidance. According to a briefing by the Office of Tax Simplification (OTS) in April 2021, the Ocelot platform has garnered acclaim within HMRC’s internal circles, and has also been deployed within The Valuation Office Agency and the Border Force.

The transition to Ocelot represents phase one of a comprehensive overhaul for CEST, a tool that has been under persistent scrutiny since its inception preceding the 2017 public sector reform of the IR35 regulations. The rationale behind CEST’s introduction was to assist public sector entities in managing the heightened administrative responsibilities arising from the reforms, as they now bear the onus of ascertaining the employment and tax status of the contractors they engage.

CEST is structured around a set of inquiries for end-hirers to address regarding the contracted personnel. This aids in determining whether their work and its execution necessitate taxation akin to permanent employees (inside IR35) or off-payroll workers (outside IR35). Prior to the reforms, contractors were entrusted with this determination, a practice HMRC alleged was sometimes exploited to artificially reduce employment tax and National Insurance Contributions (NICs).

Initially launched in 2017 prior to the implementation of off-payroll working regulations in the public sector, HMRC had actively encouraged individuals and businesses to employ it for IR35 and employment status assessments.

A surge in its usage paralleled the private sector’s adoption of similar reforms in 2021, with CEST being employed 1,837,488 times between November 2019 and August 2021. Nonetheless, the tool has been the subject of persistent criticism for its failure to align with IR35 case law, instances of being overturned in tax tribunals, its inability to provide determinations approximately 20% of the time, and HMRC’s occasional reluctance to unequivocally stand by CEST’s outcomes.

In conclusion, HMRC’s introduction of an updated CEST tool on the Ocelot platform marks a significant step towards enhancing user interaction. However, industry experts caution that while this transition may render the tool more dynamic, its underlying efficacy and compliance issues persist. The broader implications of CEST’s utility for both workers and businesses loom large, underscoring the need for further refinement in the pursuit of seamless tax compliance.