ESM11105 - Check Employment Status For Tax: Financial risk – Other costs

CEST asks ‘Will the worker have to fund any other costs before your organisation pays them?’ or ‘Will you have to fund any other costs before your client pays you?’

If a worker has any costs which are significant, are fundamental to the contract and the worker bears true risk of financial loss through incurring them, then that would fall within the ‘Yes’ category for CEST. If such costs exist, the ‘Yes’ category only applies if those costs which have not already been declared in the previous financial risk questions.

If a worker has costs which are not significant, are incurred through preference, are costs incurred for personal use, are in any way reimbursed by the hirer or there is no true risk of financial loss this would fall within the ‘No’ category for CEST.

Where costs are borne equally by employees and the self-employed, for example professional memberships and registration fees, HMRC would not consider these to be relevant ‘other costs’ for the purposes of a financial risk. These would therefore fall within the ‘No’ category for CEST.

EXAMPLE

Sandra is a research scientist who advises on whether foods are safe to eat. To do this she needs to work in a laboratory, and she needs to travel to present her findings to various interested parties.

  • If Sandra pays for premises that she uses as a lab and this is a cost she bears, this is a cost that should be considered in CEST.
  • If Sandra pays for the travel and accommodation to various locations for her presentations, these costs are significant and the hirer doesn’t pay for them, this is a cost that should be considered in CEST.
  • If Sandra can work on the hirer’s site to fulfil the contract but chooses to have her own lab as she completes other personal research, then this is not a cost that should be considered in CEST. This is the case even if Sandra does some work relevant to the contract in her own lab.
  • If the hirer pays for travel and accommodation, whether directly or through any kind of lump sum, these are not relevant costs for CEST. If Sandra chooses to upgrade her hotels at her own cost, these are also not relevant costs for CEST as she does so out of preference.
  • Sandra is required to pay an annual professional membership and registration fee. Because both are incurred, and required, by employees and the self-employed alike these costs would not be relevant for CEST purposes.