HMRC's CEST Tool is failing 1 in 5 cases - What can contractors do?
It’s been reported by the tax watchdog that HMRC’s own CEST Tool for checking IR35 status has been failing to provide a…
The taxman’s quietly-made revisions don’t fix the flaws of an IR35 status tool built almost a decade ago.
An update to CEST made yesterday (April 30th) will go down as little more than a mere footnote in the chequered history of the HMRC tool built nearly a decade ago to test IR35 status.
CEST update: Cosmetic changes, short of the revamp required
This somewhat non-event in the lifetime of Check Employment Status for Tax (CEST), not that I don’t partly back the refresh for reasons I’ll outline, isn’t because the update has gone under the radar.
That said, a lack of fanfare isn’t helping the CEST update’s chances of taxpayers being aware of it, even if the changes are only cosmetic, short of the revamp required, writes Ryan Dawson, IR35 Project Manager at Kingsbridge.
Taxman is making it easier to use CEST – who knew?!
Indeed, other than HMRC telling the Public Accounts Committee in 2024 of its “need to update its guidance and tools”, contractors have had no clue that officials want to make “it easier for CEST’s users to use the tool”.
But that is the aim of yesterday’s CEST update (in HMRC’s own words), which was cued up on .gov in a brief notice in the Spring 2025 Tax Update on Monday April 28th.
No fix for the free IR35 tool’s underlying flaws
No, the reason busy contractors won’t remember April 30th 2025 in years to come is that yesterday’s CEST update won’t fix the underlying flaws of the Government’s IR35 status tool.
So, I’m a sceptic about these now-live revisions to CEST, even if:
- better usability IS a good thing
- new “guidance” to help taxpayers answer CEST’s “revised questions” IS a good thing, and;
- this usability update comes hot on the heels of quite a few CEST updates, indicating some joined-up thinking IS happening at HMRC.
Five key dates in CEST history (in reverse order):
- April 30th 2025: CEST is revised.
HMRC says: “HMRC is revising its Check Employment Status for Tax (CEST) digital tool with effect from 30 April 2025. These changes will make it easier for CEST’s users to use the tool. To support these changes, HMRC will also publish revised guidance that offers help on how to answer the revised questions. HMRC is committed to standing behind the outcomes of this tool where it has been used correctly.” - February 2025: CEST makes no appearance in HMRC’s off-payroll research, “Update to the impacts of the 2021 off-payroll working rules reform in the private and voluntary sectors.”
- June 2024: CEST asks a new question: “What job role are you using the CEST tool for?”
- February 2024: HMRC updates CEST by programming into the tool 12 IR35 cases.
- October 2023: HMRC moves CEST to a new platform (OCELOT), designed to boost usability and taxpayer interaction.
Other important CEST dates for your diary
The above CEST timeline could go right back to the tool’s official launch in March 2017.
The other key date in CEST’s past is November 2019, when the tool’s underlying logic was last updated.
It’s pleasing to note that the October 2023 update is a bit like this April 2025 update, which the government is calling “Check Employment Status for Tax Digital Tool Revisions”.
Both updates are aimed at enhancing a CEST user’s journey. The Revenue is therefore trying to improve the experience of using CEST. That’s something that we support, and we won’t be the only IR35 insurer to get behind such improvements!
A third of CEST users don’t find it useful
If the cynic in me is to have a voice here, however, I’m pretty sure that HMRC will have noticed that just six months ago, a third of CEST users answered “No” to the question “Do you find CEST useful?”.
And it wasn’t a vested interest party behind these September 2024 findings. Rather, it was ABAB, and their only remit is helping improve things for small business taxpayers.
Same old CEST, because its ‘logic’ isn’t being updated
But in the CEST update yesterday, HMRC makes clear that while contractors, agencies, end users and other CEST users can expect “revised questions,” there’s no revised logic.
Online, there’s some support for CEST staying the same at its core.
After all, the judgment in PGMOL v HMRC vindicated HMRC’s stance on Mutuality. Perhaps if the Supreme Court ruling had gone against HMRC, then there would have been cause to upgrade CEST’s logic – or so the online supporters seem to be saying.
PGMOL (continued)
The PGMOL case has effectively updated HMRC materials elsewhere. In February 2025, the Revenue’s manual for its inspectors was refreshed to factor in the principles that formed the landmark decision that went against the taxpayer (see HMRC updates ESM in wake of PGMOL, rescoping ‘IR35 battleground).
And CEST, too, has inspired Employment Status Manual (ESM) updates.
What Kingsbridge’s IR35 veteran Andy Vessey says…
In particular, HMRC has previously published an entire ESM (that’s the manual for its inspectors) to support the use of its CEST, which then feeds into the tool’s questions.
But as my colleague and IR35 veteran Andy Vessey has pointed out, the ESM is only HMRC’s “interpretation” of legislation and case law.
Likewise, while it’s hard not to be supportive of HMRC publishing taxpayer guidance as part of this CEST update (to help the tool’s users answer the revised questions) again, the guidance isn’t binding.
Firming up the flimsy
- The tax authority tries to firm up all this flimsiness by pointing out that it is “committed to standing by the outcomes of this tool where it has been used correctly”.
- Apparently, yesterday’s new guidance was needed because some of the CEST questions were being taken the wrong way, with HMRC’s wording blamed for being open to interpretation.
“Unable to determine” – too often CEST just cannot decide
This leads me to why this April 2025 refresh to CEST – mainly for functionality improvements – should have gone much further. It should have given the entire tool a revamp.
One in five outcomes for CEST users comes back as “unable to determine”. That’s simply not good enough when, ironically, taxpayers are only using CEST in the first place to obtain clarity on their tax status.
Lastly, a word of caution (that the taxman isn’t telling you)
Finally, I also believe it’s not good enough for HMRC to keep saying it ‘stands behind CEST outcomes’ as long as the inputs are sound, without ending that statement with a warning. Remember, the only way HMRC is going to be able to stand by your CEST result is if they open a compliance check and take a good look themselves!
CEST just doesn’t hold up as a comprehensive audit trail, unlike some of the private sector tools, including Kingsbridge’s IR35 tool, that will. So wherever possible, avoid using CEST in isolation, even if it has just been updated. A belt and braces approach really can pay dividends to contractors later down the line.
How Kingsbridge can help
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