ESM11100 - Check Employment Status For Tax: Financial Risk - Material Costs
CEST asks ‘Will the worker have to buy materials before your organisation pays them?’ or
‘Will you have to buy materials before your client pays you?’
If a worker has to supply substantial materials and either cannot obtain reimbursement or faces the risk of financial loss should the contract not be paid, this would fall within the ‘Yes’ category for CEST.
If a worker incurs costs on small or incidental items such as stationery, low cost consumables (such as fuses, nails, paint, shampoo etc.) or items which are not a lasting part of the final product, then this would fall within the ‘No’ category for CEST.
EXAMPLE
- Piotr valets cars. He uses cleaner and wax to undertake his job. The hirer supplies these at cost price which equates to about 5% of his income. The cost of these products is not significant and the products do not form a lasting part of the work. These should not be considered when completing CEST.
- Anita is a dress maker who designs and produces wedding dresses. She supplies the dresses to a large bridal company who sell them. Anita must purchase all the high-end fabrics, at her own expense, in advance. These materials equate to about 40% of her income. These costs are significant and the materials form a lasting part of the final product so should be considered when completing CEST.
- Petra is also a dress maker who designs and produces wedding dresses. She supplies the dresses to a large bridal company who sell them. Petra charges the cost of all the high-end fabrics up front so the hirer has paid the cost of all the materials. These material costs should not be considered when completing CEST as the hirer, and not Petra, has paid these costs so it cannot be a financial risk.