HMRC has confirmed an improved version of its check employment status for tax (CEST) tool should launch before the end of the year.

The tool was first introduced in 2017 as part of an extension to the off-payroll (IR35) rules that applied to the public sector.

It aimed to help public-sector contractors and organisations decide if a worker should be taxed as an employee.

HMRC said the existing tool “takes users through straightforward, step-by-step questions” to determine their employment status.

But widespread criticism forced the Revenue to go back to the drawing board before IR35 extends to the private sector in April 2020, subject to confirmation.

BBC chiefs blamed the CEST tool’s failings for around 800 of its freelancers receiving backdated tax bills, after the tool overturned their employment statuses.

The Revenue said: “HMRC will launch an enhanced version of the CEST tool before the end of the year.

“We worked with more than 300 stakeholders to make the tool clearer, reduce user error and consider more detailed information.

“Customers don’t need to wait for the enhancements to go live: HMRC stands by the results given by the tool now, provided the information entered is accurate and it is used in accordance with our guidance.”

The news comes after HMRC announced new guidance covering changes to the off-payroll working rules known as IR35 which will come into effect next year.

From 6 April 2020, medium and large-sized businesses will be responsible for deciding the employment status of workers they enter a contract with.

For every contract a business agrees with an agency or worker, it must determine whether the worker is considered employed or self-employed under IR35 rules.

It must then pass that determination and the reasons for it on to the worker or agency.

If the worker is found to be within IR35, meaning they are effectively working as if they were employed, the business engaging them must deduct tax and national insurance contributions from their fee, and pay this to HMRC.

The current employment status indicator can be accessed at https://www.gov.uk/guidance/check-employment-status-for-tax

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Paul Farrington