HMRC IR35 CEST Tool – 10 key concerns


Check Employment Status for Tax (CEST) is a free online service released by HMRC in February 2017, designed to help firms make status determinations concerning the off-payroll working legislation (Chapter 10 of ITEPA 2003). The legislation, commonly called the "IR35 reforms", was implemented in the public sector in 2017 and extended to the private sector in April 2021.

The rules mean that if a worker is assessed as a "deemed employee" (or "Inside IR35"), then payments made to their limited company must be treated as employment income, just like a salary. Hirers are legally responsible for assessing their contractors' "IR35 status" and are liable for the tax.

The widely reported issues with CEST have generated widespread concern that firms have over-relied on the tool, leaving many UK organisations and contractors worryingly exposed to large tax bills in the future. Parliamentarians have questioned whether CEST is fit for purpose (Reference #1).

In May 2023, IR35 Shield explored the reported issues, investigated the tool's decision logic, compared it to recent case law, and sought to understand whether CEST was putting businesses at risk. The findings were published in the 34-page report titled: Check Employment Status For Tax (CEST): Exploring the reliability and accuracy of HMRC's status assessment tool.

The intentions for CEST were that it would be accurate and based on the case law, deliver binding decisions for users, give firms certainty, and be kept regularly updated.

However, those ambitions do not appear to have materialised, and concern is increasing that CEST's rudimentary functionality produces results that leave firms exposed.

Listed here are the top 10 concerns surrounding the HMRC IR35 CEST tool.

1 - CEST has not been kept updated

Despite Jim Harra, Chief Executive and First Permanent Secretary for HMRC, promising the Public Accounts Committee on 21 February 2022 that CEST would be adjusted as the case law develops, CEST's underlying decision engine hasn't been updated since 24 October 2019.

Since CESTs' last update, eighteen IR35 tax tribunal decisions have been published, and yet, there has not been one change to the underlying CEST engine.

2 - CEST is misaligned with the law

The failure to deliver on the maintenance promise (see point #1) is even more surprising given the seminal decision of HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501, published by the Court of Appeal almost a year ago on 26 April 2022.

The Atholl House decision set precedent for many of the now-binding legal principles to determine tax status, having rejected many submissions from HMRC, which proved beyond doubt that their longstanding "policy view" on status matters, upon which CEST was built, was fundamentally wrong.

3 - CEST is not legally binding

CEST was not put into statute and therefore does not deliver legally binding decisions nor offer firms certainty.

4 - CEST breaches reasonable care

CEST's "single-factor" decision logic when making "Outside IR35" determinations is based solely on triggering necessity conditions and leads to carelessly produced determinations, which can breach the statutory requirement to take reasonable care.

5 – HMRC does not "stand by" CEST

HMRCs non-statutory promise to "stand by" the CEST results was short-lived, with public sector users hit with tax bills of £263m (Reference #2).

6 – CEST is biased

CEST rarely delivers an outside IR35 determination when it conducts a full multi-factorial determination. See the IR35 Shield full report (Reference #3).

7 – CEST does not produce a valid Status Determination Statement (SDS)

A statement is only an actual Status Determination Statement if it contains a conclusion reached using reasonable care and reasons for the conclusion.

HMRC confirm that a determination has not been reached using reasonable care if the assessor "fails to take account of all relevant evidence." For Outside IR35 determinations, the single-factor approach breaches this guidance; therefore, the output is not an SDS.

Where CEST makes an "Inside IR35" determination, it states, "the answers you have given suggest you are providing personal service to your client", which is unlikely to meet the statutory requirement of "reasons for the conclusion". Therefore, the output is not an SDS.

8 – CEST outputs facilitate tax avoidance

With the CEST output arguably unsafe and not a valid SDS, a rogue umbrella company can pounce on its weakness and pay gross to a contractor's limited company. These tax avoidance opportunists essentially leverage the unreliability of CEST, which results in hiring firms unknowingly accumulating massive tax bills.

9 – CEST accuracy is unproven

In a series of disclosures and publications by HMRC, they confirmed that they held no detailed testing data for the accuracy of the CEST tool, nor did they have a list of the people who had attended any testing workshops. HMRC Standards Assurance also confirmed they had not checked the tool's accuracy. (Reference #3: Appendix B)

10 – HMRC will ignore CEST results

HMRC and Treasury jointly confirmed the stance that would be taken by HMRC inspectors in a letter to the House of Lords in March 2022 (Reference #4) when the Financial Secretary of the Treasury (FST) wrote:

"Regardless of whether a client has used CEST or not, HMRC's compliance checks will always examine the actual working arrangements and contractual frameworks in place for the engagement in question to reach a view on whether status has been correctly determined in line with the relevant case law."

We agree with the FST.

What will happen with CEST?

With the CEST known issues, one would expect HMRC to warn users, but alas, no. The HMRC specialist status teams send enforcement letters to firms asking firms to use CEST within 30 days and retain copies of any decisions taken. But don't be fooled. CEST is not mandatory, nor does it have any legal authority.

Rumours are that CEST will receive a lick of paint by year-end 2023 but that the underlying decision engine will stay tuned to HMRC's outdated "policy view" of IR35 status.

But until CEST is provably fixed, we don't recommend firms risk losing their businesses by playing the CEST game. The best way to win at CEST is not to play at all.

How to check a CEST assessment

To help people understand if they might be affected by CEST's flaws, IR35 Shield released a CEST checker tool allowing contractors and businesses to find out if they are at risk.


  1. Off-payroll working: treating people fairly. House of Lords, Economic Affairs Committee Finance Bill Sub-Committee – 22 April 2020. "We question whether the CEST tool as currently constituted is fit for purpose" [87]
  2. National Audit Office Report: Investigation into the implementation of IR35 tax reforms, 10 February 2022. Paragraph 16: The 2020-21 financial statements of government departments and agencies include a total of £263 million paid, owed or expected to be owed in additional tax for failing to administer the reforms correctly.
  3. Check Employment Status For Tax (CEST): Exploring the reliability and accuracy of HMRC's status assessment tool—appendix B.
  4. Financial Secretary to the Treasury letter to House of Lords Economic Affairs Finance Bill Sub-Committee, Off-payroll Working Follow-up Inquiry. 09 March 2022.
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