Legal update
HMRC's Check Employment Status for Tax (CEST)
After facing certain criticism, and following the Government’s announcement in the Spring 2025 Tax Update that it would revise its Check Employment Status for Tax (CEST) tool, HMRC has now updated its CEST tool and updated its CEST-related guidance in its Employment Status Manual (the CEST Guidance).
What is the CEST tool?
The CEST tool is an online tool provided by HMRC to determine whether an individual should be classed as employed or self-employed for tax purposes. Importantly, it does not determine employment status for employment law purposes (as these are two distinct assessments).
Whilst in certain circumstances the CEST tool can be useful, it is not perfect and the result produced by the CEST tool is often inconclusive. A recent case also highlighted an issue in that the CEST tool fails to adequately address whether ‘mutuality of obligation’ exists in any particular contract (an important factor in determining employment status for tax purposes).
When the CEST tool does produce a result, HMRC has said that, provided the CEST tool is used correctly, accurately and in line with HMRC guidance, then HMRC will stand by the employment status determination (for tax purposes) that is produced by the CEST tool.
What changes have been made from 30 April 2025?
Most of the changes to the CEST tool have been to simplify the language used in its questions to make the tool easier to use. There have also been short updates to the CEST Guidance concerning what comprises personal service and financial risk (other factors used to determine employment status for tax purposes).
However, the most substantive change is the addition of a new question that asks the user if a contract is (or will be) in place for the arrangement. Given this reflects a key, basic element of an employer-employee relationship (i.e. it is a factor that indicates mutuality of obligation), this is a welcome addition to the questions asked by the CEST tool.
How have the changes been received?
Although the April 2025 changes are welcome, it remains to be seen whether they go far enough in amending the tool to properly enable it to accurately capture employment relationships and ensure reliability of the outcomes produced. On first look, the updates appear limited and the core programming that works in the background for CEST does not appear to have changed.
Practical takeaways for employers
The CEST tool can continue to be used by employers as the starting point for any assessment of employment status for tax purposes. However, given the limitations of the system and the likelihood of the CEST tool producing no conclusive result, employers should also ensure that they have a process for assessing these matters on a case-by-case basis. Whilst the analysis of employment status for employment law purposes is different from that for tax purposes, Northridge can assist in employment status determinations more generally.
