Data suggests firms are turning away from CEST as critics say it fails to reflect recent court rulings
Use of HMRC's own tool for checking compliance with the UK's controversial IR35 freelancer tax rules has fallen sharply, according to Freedom of Information data obtained by tax adviser IR35 Shield.The Check Employment Status for Tax tool, better known as CEST, was created to help firms decide whether contractors should be taxed like employees. But usage fell 43 percent during the 2025-26 tax year, and dropped 71 percent between 2023-24 and 2024-25, from 458,894 determinations to 135,178.
What is IR35?
IR35 is a reform unveiled in 1999 by the UK tax authorities. The latest regulation change – which came into force in April 2021 – forces 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 – i.e. 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 PSCs, which are taxed at lower corporate rates.The measures first came into effect in the UK 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.
