How to dispute an unfair CEST status determination


It's widely known that CEST isn't going to deliver fair tax treatment for contractors when it comes to status determinations and is heavily biased in HMRC's favour. Surprisingly, some firms are still using it, with many discovering that it's telling them that the vast majority of their contractors are caught by IR35 – when in fact that may not be the case.

The most recent version of CEST was not materially changed. They added one extra “room” relating to being in business on one’s own account – but for most knowledge-based contractors it makes no difference.

Whilst CEST now asks all of their limited list of questions, when you look under the bonnet, you can see that it still only produces an “IR35 does not apply” result based on isolated areas of law. This is worse than before, because it implies balance has been used, when it hasn’t, leading the user into a false sense of security, particularly for outside IR35 determinations.

For the classic knowledge-based contractor, it will only hand out “IR35 does not apply” if (a) there is a valid substitution clause, or (b) if there is barely any control at all. A substitution clause alone won’t hold up in court, and the high bar set for control is entirely unrealistic and does not align with the law. HMRC would simply use this to claim that the answers entered were inaccurate and thereby not “stand by the result”.

Based on the widely published criticism, we’ve provided a simple retort for contractors being unfairly treated for you to use.

CAVEAT: This is, of course, dependent on your actual status being outside IR35. If you are inside IR35 then you should have paid your IR35 taxes in previous years.

Combatting a CEST Determination - letter to client

Dear (insert client name),

Thank you for your determination.

Sorry, but I do not recognise CEST as a fit-for-purpose mechanism for determining employment status. This is widely known in the market, and your advisors and lawyers will surely have read the compelling evidence that supports this view, which includes:

  1. CEST does not consider mutuality of obligation, which I believe does not feature in my contract.
  2. CEST makes determinations based on isolated areas of law, rather than considering the bigger picture, as per the requirements under Hall v Lorimer Lorimer [1993] EWCA Civ 25
  3. CEST reaches the wrong decision for actual IR35 court cases that have been successfully appealed by taxpayers.
  4. HMRC have not published any detailed evidence to prove that CEST is accurate
  5. CEST has no binding authority in statute
  6. Tribunals have rejected CEST, referring to it as “irrelevant”

Assuming your firm has conducted good due-diligence and research on CEST, and is not operating in an information vacuum, it is arguable that by using it, your firm is not adhering to the requirements for reasonable care as required by the legislation in 61NA(3).

This means that the tax liability still sits with your hiring firm, as the fee-payer, and that the agency has no legal right to deduct monies from the gross fees they pay to my limited company.

Having taken advice I’m of the view that my contract is outside IR35, and have attached evidence, including an alternative Status Determination Statement (SDS) to demonstrate this. A summary of the main reasons is:

  • Bullet point 1 – insert here
  • Bullet point 2 – insert here
  • Bullet point 3 – insert here
  • Bullet point 4 – insert here
  • Bullet point 5 – insert here

Please accept this letter as a formal application of a dispute of status under the legislation, as set out in section 61T. If you disagree with the reasons set out in this letter then you are required, by the legislation in 61T (2)(ii) to state the reasons for doing so within 45 days.

As part of your requirement under 61T(2)(ii), please provide the following information:

  1. The basis on which your firm, despite the six reasons provided, has concluded that by using CEST it meets the requirement for reasonable care.
  2. Why the determination in the alternative SDS I’ve attached is wrong, with reference to specific case law authorities upon which you are relying.

Thank you.

Yours sincerely


Next steps

Wait and see what happens.

Because there is no access to natural justice via a court, the client is effectively marking their own homework, and has the final say.

You may be presented with “We are not changing our minds; do you want the contract or not?”

At that point you have a few options: (1) Offer your services for a much higher rate, (2) vote with your feet, or (3) accept the determination.

Tip: Use IR35 Shield to get a definitive status for free!

IR35 Shield

IR35 Shield is the cloud-driven industry leading IR35 compliance standard for business and individual contractors.