Why CEST isn’t fit for purpose

CEST stands for Check Employment Status for Tax and is the HMRC developed tool that many businesses use for IR35 assessments. It hasn’t been updated for nearly 3 years and as such its suitability is frequently discussed, and despite businesses continuing to use it for conducting IR35 assessments, it is important to note that its usage carries serious risks.

CEST doesn’t adequately address the concept of Mutuality of Obligation (MOO)

With CEST being an online tool, It’s only as reliable as the information that is inputted, which means if you are unclear or are guessing the answers to questions, the final determination may not be accurate. On top of this, CEST has never included Mutuality of Obligation (MOO) in its determination. This is a key factor for determining an IR35 status, overlooking this can create legal issues for end hirers.

For anyone unaware, MOO refers to a situation where an end hirer is obliged to provide ongoing work to a contractor, and the contractor is obliged to carry out that work. If this relationship exists between the parties, it can suggest that the contractor is actually an employee rather than a self-employed worker.

To avoid this presumption, the contractor should be engaged for a specific project or task, with no expectation of ongoing work beyond that scope. Once the project or task is completed, there should be no obligation on the end hirer to offer additional work, and no obligation on the contractor to accept any additional work offered.

CEST is only as reliable as the information that is inputted, which means if you are unclear or are guessing the answers to questions, the final determination may not be accurate. On top of this, CEST has never included Mutuality of Obligation (MOO) in its determination. This is a key factor for determining an IR35 status, overlooking this can create legal issues for end hirers.

CEST has no precedent on this issue in case law

One of the key issues with CEST is that it has no precedence in case law. In other words, the tool’s outcomes and conclusions have not been tested or validated by any legal authority, which means that its results are not necessarily legally binding or definitive.

We have seen cases where businesses have relied on the CEST tool to determine the status of their workers, only to have HMRC challenge the findings. HMRC has stated that simply using CEST does not constitute reasonable care and that the person inputting the data needs to have a good understanding of IR35 and to have input all the information correctly.

It’s important when assessing an IR35 role to have a thorough understanding of the relevant legislation and case law. Both your contracts and working practices should be aligned and then reviewed against the legislation and recent case law.

Having access to experts who understand the IR35 legislation and are able to break down what HMRC require is key.

CEST does not consider the contractual status in assessing IR35

An essential point that often leads to confusion regarding an IR35 assessment using the CEST tool is that it does not consider the contractual status of contractors when assessing IR35. Instead, it only looks at the day-to-day working practices.

Not only is it vital to complete and review both the contractual situation and the day-to-day working practices, but you need to ensure you review all additional contracts within the supply chain, this includes the Master Service Agreement (MSA) and the Contract for Services. This review process will ensure that any terms flowing through the contractual chain accurately reflect the working practices and engagement in principle.

It is important to note that a contract that does not reflect the working practices or vice versa is likely to be frowned upon by HMRC and may lead to further investigations. An incorrectly determined Statement of Work (SoW), Managed Service, or Contracted out Service could lead to the contract looking contrived and opening up the entire supply chain to further risk.

Therefore, reviewing both the contractual situation and the day-to-day working practices will help to avoid any potential issues with HMRC and ensure that you remain IR35 compliant.

CEST does not factor in your supply chain

With CEST being an online tool, it will only focus on the information provided and looks no further than the day to day working practices in a contract. This leaves businesses vulnerable as it doesn’t factor in contracts throughout their supply chain.

As HMRC continues to crack down on investigations and send letters to businesses requesting more information on their IR35 process and contract reviews, it’s essential that businesses are prepared.

All areas within the supply chain pose different risks for the hirer, so it’s crucial to have full visibility from the offset. Otherwise, any potential fines or penalties could travel up the supply chain, putting the hirer at risk. You can read more about the supply chain risks here.

CEST has limitations so isn’t able to support this process.

CEST requires the user to understand IR35 case law

With CEST being a free tool, many businesses think that this is a great way to determine their employment statuses, but this isn’t the case. The person completing any IR35 assessments needs to fully understand the implications of the IR35 legislation whether they are using a tool or not.

Under IR35 legislation, the determination of whether a worker is an employee or self-employed is based on specific rules and case law. When using CEST, users (the business) need to answer a series of questions about the workers working practices and engagement to accurately determine an employment status. If any of these questions are answered incorrectly, it can lead to an incorrect determination, which can have serious consequences.

We have seen cases where incorrect determinations have resulted in HMRC investigations, fines, and penalties. It could be as simple as getting one question wrong. That’s why it’s crucial to ensure that you understand the implications of IR35 and really think about who you trust to complete your assessments.

21% of cases are classified as undetermined

All contract roles need to be assessed compliantly, resulting in either an inside or outside IR35 status. There is no other outcome, and HMRC will not accept any other classification.

One of the main challenges that businesses face when assessing an IR35 status is the use of online tools like CEST. CEST unfortunately can’t provide any guidance when completing assessments. If something is inputted that sits outside of the automated process, this will result in an undetermined IR35 status. Which, as we previously mentioned, isn’t accepted by HMRC.

According to HMRC data, 21% of CEST reviews are left undetermined, which leaves businesses with no resolution and needing further advice. This is where partnering with a company like Brookson can be invaluable. We provide access to ‘real people’ who are experts when it comes to IR35 and we will work with you to ensure that you have a correct status that is accepted by HMRC.

CEST has failed a range of government public sector organisations

As you are aware, HMRC is taking the recent legislation changes seriously and it is crucial that businesses have the right processes and procedures in place to comply.

We have seen a range of public sector businesses receive fines, including some government organisations, which demonstrates that no business is immune to the impact of non-compliance. Many of these businesses have used the CEST tool to audit their workers which has resulted in them being fined by HMRC.

As a result, we want to emphasise that HMRC will not stand by the results provided by CEST, and will conduct an investigation if it believes there are any non-compliant practices.

Examples of public sector fines:

NHS Digital – 4.3 million
Incorrectly engaged with contractors from 2017 to 2018. Even with the use of HMRC’s CEST tool, their audit outcomes were incorrect. As a result, they had to pay a £4.3m fine.

The Home Office – 33.5 million
Incorrectly assessed their flexible worker’s employment and tax statuses between 2017 and 2021. This resulted in them receiving a £29.5m fine, along with a £4m penalty.

Department of Work and Pensions  – £87.9m
After an investigation, it revealed DWP had been incorrectly assessing their flexible workers since 2017. Using CEST incorrectly resulted in an £87.9 million fine.


If you have concerns about of the points we have addressed in this blog and would like to discuss with IR35 experts, please don’t hesitate to get in touch.