Self-Employed? Do you pass CEST?

HMRC uses a set of criteria to determine whether an individual is genuinely self-employed. These include:

• Control: Do you decide how, when, and where you work?
• Substitution: Can you send someone else to do the work?
• Financial Risk: Do you bear the risk of making a loss?
• Provision of Equipment: Do you supply your own tools or materials?
• Opportunity for Profit: Can you increase your earnings through efficiency or business decisions?
• Mutuality of Obligation: Is there an expectation that work will be offered and accepted on a continuous basis?#

Risk as an employee

If you fail the test.

1. There will be significant fines for the unpaid income tax and NICs.
2. This can be backdated up to 6 years.
3. Interest on unpaid tax and NICs
4. If deliberate or negligent, then there could be fines of up to 100% of the unpaid tax.
5. Unable to claim any business expenses. All of those will be added back as income and taxes at either 20%,40% or 45% plus NI.

Risk as an employer

Failing the test is equally problematic for the employer.

1. Fines for underpaying the employer’s NIC. 15% from April 2025.
2. Fine for underpaying the employer pension contribution.
3. Interest and fine for negligence.

Both the employer and the self-employed individual need to assess their situation. If in doubt, speak to your accountant.