Why HMRC might be hesitant to develop a contracted-out services tool

If IR35 rabbit hole CEST was your last tool for taxpayers, would you be rushing to create its successor around ‘contracted out’? No, us neither. 

They’re multi-layered, divisive and often opaque, so I don’t wish to underestimate the complexities intrinsic to ‘contracted-out services’.  

But looking at HMRC’s own statistics on CEST, which show a big drop in users, it’s perhaps no surprise that the taxman isn’t exactly keen to create another digital tool for taxpayers to use free of charge, writes recruitment specialist Matt Collingwood, Managing Director of VIQU IT and VIQU Energy. 

CEST by HMRC is (still) the IR35 rabbit hole… 

Be in no doubt, CEST is a rabbit hole.  

It’s arguably a rabbit hole that clients, contractors, and we recruitment agencies are just more familiar with going down in 2025/26.  

It’s very possible that HMRC knows that. 

Let me explain.  

In the early days of the March 2017 tool, the unfamiliarity of Check Employment Status for Tax (CEST) was almost a cause for end clients to run the online service a few times. And then a few times more.  

Using Check Employment Status for Tax (CEST) to get a royal flush

In taking this experimental approach to CEST, clients and their HR staff often ended up with a few outcomes. Maybe even CEST’s ‘royal flush’ – outside IR35, inside IR35, and ‘unable to determine’.  

With the widest possible array of options available to them, some engagers (not all engagers, HMRC) then simply chose which Status Determination Statement (SDS) reflected the true engagement. 

When were the boom times for CEST?

However, it wasn’t just on the eve and aftermath of the IR35 off-payroll working (OPW) rules in the public sector that our contractor staffing agency witnessed significant usage of the government’s free-to-use IR35 status tool. 

As well as this April 6th 2017 boon for CEST, there was a spike in the tool’s users back in 2021-2022, as that was when the OPW framework was introduced into the private sector.  

During this inaugural tax year of private sector IR35 reform, virtually every contractor we placed would have been assessed using CEST. And perhaps with good reason – HMRC’s guidance at the time as good as said (almost threatened), that SDSs should be carried out across the entire UK limited company contractor workforce. 

CEST usage in 2025/26 be like these three things…

Three things characterise the usage of HMRC’s tool for testing IR35 in the current 2025/26 tax year. 

In fact, since those heady days for CEST in 2017 and 2021, in 2025/26 we’re seeing: 

1. A reduced need for IR35 status assessments (clients are ‘gaming’ CEST, i.e. using it to gain the SDS outcome that they want, due to now being familiar with the rabbit hole).

2. A reduced need for IR35 status reassessments (due to the gaming of the tool, above, the desired outcome was achieved first time, foregoing the need to rerun CEST).

3. Fewer limited company contractors challenging ‘inside IR35’ determinations via CEST.

Contractors no longer disputing IR35 determinations is massive

Fewer contractors challenging CEST coming back with ‘OPW rules apply’ should not be underestimated as a significant factor in plummeting CEST usage.  

This week, I spied a fellow recruitment agency boss citing a few key reasons for CEST usage falling by 73%, and fewer contractors using the client-led dispute process to challenge the initial CEST outcome was not included in the boss’s online post.  

Fewer contractor challenges of IR35 status should definitely be included. 

Why contractors no longer challenge CEST outcomes

And the context here is king. In today’s job market for technology contractors, there’s a ‘take it or leave it’ approach from end-client organisations.  

Once upon a time, many contractors exercised their right to challenge their SDS as set out in Section 61T “Client-led status disagreement process” of the Income Tax (Earnings and Pensions) Act 2003. 

Such an SDS challenge would force clients to re-use CEST, revisit the tool’s question, and reassess the CEST output(s).  

However, as H2 2025 gets underway, the professional temporary labour market in IT is noticeably tougher. The result? Contractors are almost universally less inclined to challenge an ‘inside IR35’ CEST determination out of fear of losing the temporary assignment altogether.  

We’ve seen a 100% drop in contractors challenging ‘inside IR35’ decisions…

Knowing that this is an area where stats do the talking, I’ve dug up the following figures, exclusively for the Kingsbridge Blog. 

In 2021/22, almost 30% of the contractors that our agency placed challenged their Status Determination Statement.  

Invariably arrived at from using CEST, these 3 in 10 SDSs were effectively sent back to square one, triggering (at a conservative estimate) hundreds of reassessments. 

So far in 2025, at this halfway point, I’ve not been involved in a single SDS challenge from a contractor. Therefore, challenges to IR35 status, typically where that status decision was made via CEST, have fallen from 30% to 0%. 

There’s no ‘outside IR35’ contracts anymore, right? Wrong

However, here’s something that we know contractors will have a harder time believing. 

‘Inside IR35’ assessments no longer being contested doesn’t equate to ‘outside IR35’ roles no longer existing. 

Remember, as recently as June last year there was a pretty even ‘inside’-‘outside’ IR35 split, with 52% ‘inside IR35’ as of April-June 2024. 

As of July 8th 2025, 78% of our gross profit comes from contract work, with the remaining 22% being contributed by permanent recruitment placements. Yet out of all these contract placements, 40% are ‘outside IR35’. 

While this disclosure that the majority of our temporary roles are ‘inside IR35’ might not excite contractors, I hope the data goes some way to unpicking the untruth we’re regularly told: “There’s no ‘outside IR35’ contracts anymore”. 

The limited-umbrella company turnaround

A few more stats may be of interest.  

Between 2015 and 2021, contractors operated on a 60:40 split in favour of providing services via their own limited company.  Looking at our current data (H1 2025), the split among placed contractors is now roughly 60:40 in terms of clients favouring on-payroll engagements, i.e. working via an umbrella company.  

Due to an increase in HMRC’s education and guidance on IR35, we sense that clients have become better informed on how to engage and work with genuine contractors.  

That greater awareness itself may be another reason why end users don’t feel tethered to CEST anymore. 

Challenges, control, risk and hope

However, it’s possible that due to current economic challenges, and a significant number of contractors (particularly IT generalists) being out of work, end clients are opting for greater control and reduced risk.  

That may explain why we’re seeing such a flat trend in the data, whereby it’s 60:40 still – but this time in favour of umbrella company working from clients calling the shots. 

My hope is that, as demand for their skills rises, contractors will begin to push for alternative engagement models once again – even asking for their ‘inside IR35’ outcomes via CEST to be retested, which of course is their statutory right.  

An ‘outside IR35’ resurgence courtesy of the Employment Rights Bill? 

But they might not need to do anything that the government isn’t already doing. There are whispers that the Employment Rights Bill may act as a catalyst here, as its almost 30 onerous obligations on employers, such as guaranteed hours and ‘day 1 employment rights’, will perhaps shine a favourable spotlight on ‘outside IR35’ commercial hiring.  

While we’re not banking on CEST being used to facilitate this potential resurgence in ‘outside IR35’ working, there is something to be said for the recently updated IR35 status tool.  

And it’s a ‘something’ that may even make HMRC reconsider its view that a contract-out services tool is a non-starter.  

When working with clients who are unsure how to conduct an assessment and issue an SDS, we always point them to CEST. There’s only one reason for this – HMRC’s explicit assurance stated on the first page of its CEST website that the tax authority will: 

“Stand by the result you get from this tool” 

Despite the handfuls of mud often thrown at CEST (usually by vested interest parties), this CEST disclaimer by HMRC is enough to provide many end clients with the belief that HMRC will not dispute the validity of an IR35 status decision using its own technology.  

So, while I’m far from a fan of CEST, like almost everyone else who’s had the misfortune of using it, I’ve nonetheless seen countless clients accept an outside IR35 contractor purely on the strength of that assurance. It’s the sort of assurance HMRC might want to consider if it ever does seriously look at building a contracted-out services tool. 

Getting support with IR35

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