CEST, MOO and Status Anxiety


Status Anxiety

A few years ago, I read a book with this title by the philosopher Alain de Botton, wherein he described status anxiety as the constant fear of being perceived by society as unsuccessful – a very 21st century and decidedly first world problem. In the tax and employment law world, however, a different form of status anxiety is emerging– the fear that the contractors providing services to your business might be categorised as employees, with the potentially disastrous consequence that you will be responsible for their PAYE and NIC and recognise employment rights.

Over the years, HMRC have, in some cases quite rightly, queried whether some arrangements involving supposedly independent contractors might not actually be employment relationships. The people working in parts of the gig economy – Uber drivers, couriers, and in a notable recent case, the plumbers of Pimlico – have also increasingly sought to assert rights which would only be available to employees or those categorised as “workers” for employment law purposes.

For nearly twenty years, the Government and HMRC have also sought to prevent the use of personal service companies (PSCs) to disguise employment arrangements. (This legislation is commonly referred to as IR35 as that was the number of the Budget press release in which the proposals were announced.)


HMRC have “helpfully” provided an online tool to enable contracting parties to determine whether contracts give rise to employment or self-employment status for tax purposes. This is the so-called CEST (Check employment status for tax) tool which can be found online at https://www.gov.uk/guidance/check-employment-status-for-tax. HMRC states that, if the CEST tool is used, they will abide by the results unless false or misleading information has been given.


However, this “tool” has been subject to strong criticism by tax advisers, lawyers and contractor interest groups. Recently, the criticism has focused on “mutuality of obligation” (MOO). Essentially, mutuality of obligation is the simultaneous existence of an obligation on the part of one party to the contract to provide work and pay for it, and the obligation on the part of the other party personally to do that work.

Although it is but one factor in the overall picture, the presence of MOO in a contractual relationship is a strong indicator of employment whereas its absence equally strongly suggests self-employment. However, it has been pointed out that the CEST tool does not actually concern itself with MOO at all and asks no questions designed to determine whether MOO exists in the proposed arrangement.

Recently, HMRC rather ludicrously defended itself against criticism on these grounds by suggesting that if a contract was being signed, then there was already mutuality of obligation. This makes it clear that either HMRC does not know what MOO means, and how significant it is in determining status – which suggests that it is incompetent – or it chooses to pretend not to know what MOO really means in order to maintain the fiction that the CEST tool is fit for purpose. For the time being, at least the CEST is clearly no substitute for professional advice.

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