HMRC revises CEST employment status tool and guidance
The Government has clarified its position on the new third-party harassment duty in the Employment Rights Bill, emphasising prevention over retrospective knowledge.
Background and key changes
On 30 April 2025, HMRC published an updated version of its Check Employment Status for Tax (CEST) tool and revised guidance in its Employment Status Manual. The tool, which last received a significant update in 2019, determines whether a worker should be taxed as an employee or self-employed. It plays a key role in helping organisations assess status for IR35 and off-payroll working compliance.
The most notable change is the addition of a new upfront question confirming whether a contract is (or will be) in place. If the answer is ‘no’, users cannot proceed. This replaces a previous disclaimer and is intended to establish the basic requirement of mutuality of obligation. HMRC’s accompanying guidance confirms that this is not a shift in position as CEST has always been premised on the existence of a contract. However, the change aims to address criticisms that the tool previously failed to reflect this key element of employment status.
Reliance and limitations
HMRC continues to state that, where the tool is used correctly, with accurate information and in line with its guidance (and where no tax avoidance arrangements are involved) it will stand by the outcome for tax purposes. However, this assurance only applies when CEST is used to assess employment status for IR35 and off-payroll working. While individuals can use the tool to get an indication of their own tax status, they cannot rely on the results in the same way.
Ongoing criticisms
Tax and legal professionals have long criticised the CEST tool. In particular, some argue that despite the latest tweak, it still does not properly reflect the mutuality of obligation test. While HMRC has made improvements, such as clearer language and additional links to guidance, these are unlikely to satisfy critics who feel the tool oversimplifies what remains a nuanced legal test.
Learning points for employers
The CEST tool remains a key resource for determining status under IR35 and off-payroll working rules. Users must ensure that the tool is used correctly, with full and accurate information, and remember that its outputs are not a substitute for legal advice, particularly in borderline or high-risk cases. Individuals must also remember that it is not possible to rely on the tool’s results to establish their own tax status.
For more information or advice, please contact Georgia Blesson in our Employment team on 07340 631 557, or complete the form below.