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Why CEST Isn't Best

Understand the flaws in HMRC's online IR35 tool

Inception & Background

Check Employment Status for Tax, commonly known as CEST, is HMRC’s online IR35 status determination tool that aims to let contractors and businesses know if an engagement is inside or outside IR35. Since its inception in 2016 in readiness for the 2017 off-payroll legislation to the public sector, and even after its ‘enhancement’ in 2019, CEST has been battered from pillar to post by a large and wide range of industry professionals, contractors and businesses due to its failings, omissions and unreliability. 

HMRC state that CEST was developed in conjunction with tax specialists, contractors and other stakeholders, and that it underwent rigorous testing against established case law and settled cases, to ensure that it provided accurate results in line with current binding judgements. Whilst HMRC say that they will stand by CESTs results provided that accurate and correct information has been used, in accordance with their guidance, the results simply don’t stack up.

The temptations to use CEST is obvious – it’s free, easy (ish) to use, and it must be trustworthy as HMRC made it, right? Wrong.


CEST has many critics, but why? Quite simply it’s been designed to ignore certain key IR35 status indicators whilst being over reliant on others, skewing results to favour inside IR35 determinations and produce a bigger tax yield for HMRC and the government as a result – clever eh. But what has it missed out and/or overlooked?

The biggest flaw remains that HMRC insisting that there is Mutuality of Obligation (MoO) present in every contract, and that there must be such for the contract to be formed. This ill-informed and overly simplistic view from HRMC that they have built into CEST goes against case precedence, where the opinion is that MoO exists when there is an ongoing and indefinite obligation for the client to offer work and whether there is an ongoing obligation to accept and execute that work.

Another challenge identified is where CEST heavily relying on certain responses to the ‘right of substitution’ questions. Depending on the answers provided, specifically around where the right to provide a substitute is enforceable and genuine it shuts its ears and doesn’t want to hear any more on the matter, when in fact it should probe deeper and ask more questions, rather than assuming. 

It is also worth noting that CEST fails to deliver a clear inside or outside IR35 status determination in almost 20% of cases, a staggering amount when you think about it. Between 25th November 2019 and 31st May 2021 over a million users put their data into CEST, resulting in over 200,000 users getting no clear result and leaving them in limbo. Research undertaken by some industry commentators even go as far as to say over 40% of the results are flawed and return the incorrect outcome. 

Finally, the questions used in CEST are said to be confusing, open to interpretation, and not specific enough given the complexity of IR35. Furthermore, the options when answering questions are said to often be too similar to each other, leading to confusion on how to answer. Not a great situation to be in…


Yep, you read that right. The government has suffered not one, but a series of embarrassing blows by admitting it used CEST to incorrectly assess the IR35 status of workers in multiple government departments, resulting in hefty tax liabilities of almost £300m.

The list of public bodies that have been railroaded into using CEST only to then be faced with extortionate tax bills further down the line due to IR35 non-compliance grows all the time. Government departments that have suffered this fate, and the tax due includes:

– Department of Work and Pensions (£87.9m)
– The Home Office (£29.5m)
– Ministry of Justice (£72.1m)
– Her Majesty’s Courts and Tribunals Service (£12.5m)
-The Government Department for Environment, Food & Rural Affairs (£86.5m)
– NHS Digital (£3.95m)
– Innovate UK (£36m)

And the best bit about all of this is that HMRC time after time real off the same line that ‘HMRC will stand by CEST’s results provided accurate and correct information is used, in accordance with our guidance. The tool was rigorously tested against case law and settled cases by officials and external experts. Make of that what you will…


HMRC always purport that they are working with stakeholders to improve and make enhancements CEST, but in reality their options are very, very limited.

CEST has been used millions of times, and if HMRC suddenly decide that they need to change the logic and algorithms that have been used to make those IR35 status determinations then there is potentially a lot of tax at stake given they are now changing the rules of the game – so they literally have to stick to the logic and algorithms used so far.

Re-working and processing previous engagements on a newly updated version of CEST that say rightly included MOO would lead to a potentially huge amount of differing IR35 status determinations. All those people and businesses affected i.e. those that initially received an inside IR35 determination yet on the new version received an outside IR35 determination, might well have a valid legal claim for the loss of earnings, or have suffered in some other way.

In any event HRMC will remain blinkered to reality and will push ahead with CEST as it is, making very minor changes if any at all, leaving it unfit for purpose and something to be avoided at all costs. 


Given we don’t want to be that person who raises problems yet doesn’t offer a solution, we of course recommend using the Contractor Compliance Portal – it includes MoO in its IR35 status determinations, has no bias, no missing key IR35 status tests, unlike some systems out there…