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Data reveals 50% of Contractors still don't trust HMRC's CEST Tool
This year’s annual whitepaper from Kingsbridge has taken a closer look at what has changed over the last 12-months and with almost 2,000 businesses including contractors, recruiters and end clients responding to the whitepaper survey, some interesting data has emerged. 

Kingsbridge whitepaper reveals contractors are weathering the storm.

It's been well-documented that the IR35 Off-Payroll Reform (OPR) has had a considerable impact on the UK’s contractor market. Historically, there’s been a severe drop in demand for Limited Company Contractors / Personal Service Companies (PSCs) since these changes were announced. Consequently many self-employed have been pushed towards umbrella company usage or permanent employment. 

Paul Havenhand, CEO at Kingsbridge commented, “After yet another year of change; a rotating door of Prime Ministers, the on-and-off again tumult of the Off-Payroll reform, the Ukraine conflict, and the passing of Her Majesty the Queen being amongst the most notable – we’re now navigating a cost-of-living crisis and a lingering threat of recession. Despite a challenging 12 months, both anecdotally and in our data, we’ve seen good business continuity for limited company contractors, who have once again, weathered the storm and continued to provide their skills and services profitably on their own terms, outside of IR35 tax regime.”

The whitepaper found that 63% of contractors stated it has been ‘easy’ to find outside IR35 contracts over the last 12 months. This was corroborated by recruiters reporting that outside IR35 roles made up 58% of their advertised roles, an increase of 40% on last year’s data. When asked some forecasting questions around PSC engagement, 52% of recruiters believe that availability of outside IR35 roles will continue to increase over the next 12 months. In almost perfect corroboration, 54% of end clients reported that they also intended to use more limited company contractors in 2023. 

The HMRC’s CEST tool (Check Employment Status for Tax) did not fair too well in the survey, with 50% of contractors saying they don’t trust the tool. While 34% of contractors and 37% recruiters said they would choose not to work with a client based on their decision to use the CEST tool and 48% of end clients also saying that they don’t trust CEST either. 

Andy Vessey ATT – Head of Tax at Kingsbridge said, “Broadly speaking, it’s indicative from the survey results that there isn’t absolute faith in an SDS produced by CEST, even though half of all end clients still opt to use it. This disparity could be down to the fact that the tool is free to use, even though it could be costing them in lost talent, especially with recruiters and contractors reporting that they may opt not to work with an end client who relies on CEST for these status determinations.”

Andy concluded, “Clearly, the reform has caused end clients to adopt a much more risk-averse attitude and to a degree, understandably so. But our data also shows 77% of end clients believe  contractors are ‘important to their business’, inferring that specialist skills are still needed for continued business development. By mitigating the risk of a HMRC challenge to a Status Determination Statement (SDS) with good IR35 counsel, the threat of a HMRC investigation should not outweigh the pursuit of sustained growth. Ultimately it will be those forward-thinking companies who are likely to stay ahead of the competition.” 

Since April 2021, in excess of 160,000 IR35 assessments have been concluded through the Kingsbridge Status Tool, a sure sign that companies are moving away from sole reliance on the CEST tool and looking at better-quality ways to mitigate their tax liability risks. The full whitepaper can be found here. Kingsbridge Whitepaper