HMRC rolling out new update tomorrow affecting millions of workers
CEST is an online tool on the HMRC website that determines a role's employment status. Specifically, it works out whether 'a worker on a specific engagement should be classed as employed or self-employed for tax purposes"
In a new update, HMRC will " revise" its Check Employment Status for Tax (CEST) online tool for self-employed workers on April 30.
The revision was announced in a tax update published yesterday, which was titled: "Tax Update Spring 2025: simplification, administration and reform summary." The document also included other measures aiming to simplify taxation and save taxpayers and businesses time, and support economic growth.
The Check Employment Status for Tax Tool - commonly referred to as CEST - is an online tool on the HMRC website that determines a role's employment status. Specifically, it works out whether 'a worker on a specific engagement should be classed as employed or self-employed for tax purposes.'
The update is part of the government's plan to clamp down on tax avoidance through IR35, which is a piece of UK tax legislation governing self-employed tax rules for contractors.
It's designed to close a loophole in the tax system, where workers could set up a limited company structure to pay less tax. Essentially, it is a set of rules determining whether a contractor is genuinely self-employed or an employee 'disguised' as a contractor for tax purposes.
There are approximately 4.5million self-employed Brits, but the self-employed are not affected by IR35. It is only those providing their services through a limited company who are affected by the legislation.
According to the document, the changes will make it "easier for CEST's users to use the tool." It read: "HMRC is revising its Check Employment Status for Tax (CEST) digital tool with effect from 30 April 2025. These changes will make it easier for CEST's users to use the tool."
To support taxpayers, HMRC will also publish revised guidance on how to answer the changed questions. The tax department added that it would be committed to standing behind the tool's outcomes.
The document said: "To support these changes, HMRC will also publish revised guidance that offers help on how to answer the revised questions. HMRC is committed to standing behind the outcomes of this tool where it has been used correctly.'
Since its introduction in 2017, the CEST tool has been used millions of times to help determine the IR35 status and employment status of freelancers, contractors, and self-employed workers.
Qdos CEO, Seb Maley, noted that the government was right to revise the CEST tool. He said: "In its current form, it's a blunt instrument for determining if an individual is genuinely self-employed or should be paying employment taxes.
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'Changes that help users answer the questions it poses – while welcome – won't address the elephant in the room, which is that relying solely on CEST to decide employment status still poses a risk.
'Employment status can be a minefield and no stone should be left unturned when determining it. The sheer cost of getting things wrong from a tax perspective can be staggering.
'We'll await the changes, but in the meantime, it's worth pointing out that users – whether freelancers, contractors or businesses – can and ideally should get a second opinion on answers provided by CEST.'
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