• Emma Walsh

Tax check tool CEST is not looking good, as latest HMRC usage stats are published

Updated: Jul 6, 2021

The UK tax collector’s controversial Check Employment Status Tool used by contractors to determine their IR35 status returned inconclusive responses for one in five of the million plus times it was called upon in 16 months


As confirmed by the latest statistics from Her Majesty’s Revenue and Customs department last week, CEST was deployed 1,018,250 times between November 2019 and May 2021: almost half of the delivered results show the freelancers were deemed to be operating inside IR35, a little over 300,000 were outside, and in 210,100 cases it was inconclusive.


IR35 tax reform was introduced to the private sector in April for medium to large firms. It was designed to crack down on off-payroll working and reduce tax avoidance. Contractors that are "deemed employees" by HMRC need to pay income tax and National Insurance Contributors like any full-time employee but they are not entitled to other benefits, such as holiday or sick pay. In some cases contractors say they are about 25 per cent worse off each month.


CEST was launched in 2017 when IR35 legislation was introduced to the public sector, and it was tweaked in 2019. It has been repeatedly criticised over its accuracy though HMRC has always defended it.

  • UK taxman told: IR35 still isn't working in the public sector, and you want to take it private?

  • HMRC: We 'rigorously tested' IR35 tax-check tool... but have almost nothing to show for it

  • Tech contractor loses IR35 tribunal appeal: 'Right' to substitute didn't mean he could, say judges

  • UK tax collector won't probe businesses for compliance with IR35 rules unless there's reason to suspect naughtiness

  • The exodus continues: Less than half of contractors expect to stick with their employment set-up after IR35


What is IR35?

  • IR35 is a tax reform that was unveiled in 1999 by the UK tax authorities. The latest regulation change will force medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.


  • Contractors found to be within the scope of the legislation – ie, inside IR35 – will have to pay more tax than they might expect.


  • The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but avoid paying regular income tax and national income contributions by billing for their services through personal service companies (PSCs), which are taxed at lower corporate rates.


  • The measure came into effect in the public sector in 2017. The British government hoped the reforms would recoup £440m by bringing 20,000 contractors in line.


  • HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2bn a year by 2023.


The latest data on CEST released by HMRC today is not markedly different to the last set in December when 188,719 of its 975,416 inputs delivered in a year came back as undetermined. Clearly though, fewer contractors are using CEST.


WALSH WEST Chartered Certified Accountants - ACCA Business Accountants

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