Regulatory Support for Self-Employed and Independent Contractors
by on July 4, 2023
The Government’s Check Employment Status for Tax (CEST) tool was introduced in 2017 to ‘help employers (or hirers) and workers to determine how the work being done should be dealt with for tax purposes’. We’ve covered this subject previously here, after several high-profile cases found that the software the Government uses made life difficult for contractors, agencies and employers alike. Here we look at what alternatives should be considered and if self-employment status should be defined by regulation.
CEST hasn’t been the success the Government hoped it would be. Umbrella industry experts note a number of issues with it including:
A limited range of questions on which the status of the worker is determined
A lack of nuance within the questions leading to ambiguity for many contractors
A failure to include Mutuality of Obligation
Even according to the Government’s own figures, many contractors are left in limbo after using CEST. Between November 2019 and August 2021 from a total of 1,125,408 users of CEST, 49% (558,346) were determined as outside IR35, 30% (333,431) were inside the off-payroll rules, and an astonishing 21% (233,631) had an undetermined status. This clearly has a knock-on effect for the contractor who cannot begin their work and is therefore not earning any money, the end-client whose requirements go unfulfilled, and the recruitment agent who has facilitated the contract in the first place.
What’s the alternative?
What many contractors, end-clients and recruitment agents are unaware of, however, is that taking the CEST test isn’t the only way to determine a contractor’s status. Here at Payme, we use a sophisticated software system called Contractor Compliance which is not only more responsive than CEST, but also more accurate.
By asking a wider range of questions and delving deeper into a contractor’s individual circumstances we are able to more accurately determine their status, allaying any confusion and reducing their exposure to potentially wrongful levels of taxation. What’s more, if there’s a dispute involving HMRC the software enables everyone involved to manage the issue online, leaving an audit trail that can be used as evidence if the matter were to escalate.
Is regulation the answer?
Many industry experts think that self-employment status should be defined by regulation. This would help to resolve the complexity of status determination for tax and rights. In fact the Association of Professional Staffing Companies (APSCo), the trade association for the professional recruitment market, has recently outlined plans which it hopes will effect positive change in the regulatory environment. This is important not only for contractors, end-clients and recruiters but also as a means to kick-start the economy after a period of stagnation and recruitment difficulties.
As well as calling for more rigorous regulation of the umbrella market and constant reviews of Off-Payroll, APSCo is also advocating for regulatory support for both the self-employed and independent contractors. The Association suggests that contractors’ self-employment status should be defined by regulation in order to help eliminate a range of complexities within the area of status determination. In addition it suggests that the Agency Workers Regulations 2010 should be updated in order to increase simplicity for contractors.
APSCo expresses concern that current employment legislation isn’t keeping pace with the ‘new normal’ that contractors, end-clients and employment agents are dealing with, post-pandemic, and suggests a single Employment Bill. It calls for more flexible employment legislation which is able to adapt to the changing employment landscape the UK finds itself in now so that the UK’s labour market can be strengthened and reformed if necessary.
Payme is committed to fairer and more responsive employment laws as well as firm regulation of the umbrella market, so that other umbrella providers uphold the values that we strive towards. That’s why we start on a firm foundation of transparency when we help our contractors determine their own employment status to ensure that they comply with all the rules and regulations surrounding not only their employment, but also their tax obligations.
If you’d like to know more about our fair and accurate approach to status determination, either as a contractor, an end-client or a recruitment agent, get in touch today. You can call us on 0333 200 0845, email us at firstname.lastname@example.org, or use the contact form here.