Is it a fix? HMRC’s updated employment status tool
Posted on: 27-05-2025
Is it a fix? HMRC’s updated employment status tool
HMRC has revamped its “check employment status for tax” tool (CEST) and amended its guidance. What’s new and is it any better than the previous version at deciding on a worker’s employment status?
Why is status important?
For many years HMRC has targeted workers who provide their services in person via intermediaries, such as personal service companies (PSCs). HMRC’s perception is that many are disguising an employment income to escape PAYE tax and NI. The rules (known as IR35 ) affect either the PSC or, through the off-payroll rules, the PSC’s customer as a deemed employer.
Example. Bob is a director shareholder of Bcom Ltd. BigCo plc engages Bcom Ltd on a full-time contract to runs its IT back office. HMRC will want to know whether, without Bcom, Bob would have been an employee of BigCom, no matter what any contract between them says.
How to decide
Where an intermediary supplies the services of a worker a determination needs to be made whether after taking the intermediary out of the equation they would be an employee of the company. There can be a high cost in terms of time and money if HMRC doesn’t agree with you. The check employment status for tax (CEST) tool is supposed to help by providing clarity.
The tool itself
The tool asks a series of questions about the contractual relationship between the worker and the client. The preamble now refers to the CEST “determination”, wrongly inferring that the CEST result is final – it really isn’t. In fact, despite the update the logic behind the tool hasn’t changed at all, which means a user before the upgrade will still receive the same outcome if they rerun it again. Given that 20% of the time the CEST tool still “cannot determine” the position it’s hardly much of an improvement. Notwithstanding that, HMRC says it will be bound by the result given by the CEST tool if you’ve answered its questions accurately. If you have the result you wanted from the pre-updated CEST tool, there’s no need to check it again but it might be worthwhile if the converse is true.
What’s new?
Crucially, the CEST tool now asks if a contract for work is or will be in place, and if you answer “no”, it won’t continue. This change concerns the obligation of an employer to provide work in return for a wage, known as the mutuality of obligation, which has been at the centre of recent court rulings. Other than that the changes to the CEST tool are largely cosmetic.
New guidance
What’s more interesting is the updated guidance. It has been significantly changed and more examples added relating to:
- when the right to substitute the person doing the work or engaging a helper who’s not essential to the work, has no affect on employment status; and
- the impact of financial risk on the person doing the work (or the intermediary, e.g. their PSC). Examples are costs incurred by the intermediary or worker that cannot be recovered from the customer and, responsibility to rectify substandard work.
If you would like any assistance with any of these points.