IR35: HMRC’s CEST Tool Sees Sharp Fall in Usage
Use of HMRC’s Check Employment Status for Tax tool has fallen sharply, raising further questions about employer confidence in the system used to assess contractor status under IR35.
In Brief
Use of HMRC’s CEST tool has fallen sharply, raising questions about employer confidence in the system used to assess contractor status under IR35. Separately, recent research highlights the strong link between supportive managers, employee productivity, retention and motivation.
Key Points
- CEST determinations reportedly fell from 458,894 in 2023-24 to 135,178 in 2025-26, a 71% reduction over two years.
- The decline suggests many businesses are moving away from sole reliance on HMRC’s tool when assessing contractor status under IR35.
- One concern is that around one-fifth of CEST users still receive an indeterminate outcome, leaving businesses without a clear answer.
- IR35 status assessments remain fact-sensitive and may require a wider review of contractual terms, working practices and relevant case law.
- Employers using contractors should keep clear evidence of how status decisions were reached and why reasonable care was taken.
- Separate research suggests that supportive managers can significantly improve productivity, retention and motivation across the workforce.
Figures obtained by IR35 Shield through a freedom of information request show that CEST determinations fell from 458,894 in 2023-24 to 135,178 in 2025-26. That represents a 71% reduction over two years, including a 43% fall in the most recent tax year.
IR35 and the Fall in CEST Usage
The CEST tool was designed to help businesses decide whether contractors should be treated as employed or self-employed for tax purposes. This is particularly important under the off-payroll working rules, commonly known as IR35, which require medium and large businesses to assess the tax status of contractors who provide services through personal service companies.
The purpose of IR35 is to address so-called disguised employment, where an individual works in a way that resembles employment but is engaged through an intermediary company. In those cases, the tax treatment may be closer to employment than self-employment.
Despite the importance of IR35 compliance, the decline in CEST usage suggests that many businesses are looking elsewhere for contractor status assessments. One reason may be continuing frustration with indeterminate outcomes. Around one-fifth of CEST users are still said to receive no clear answer, leaving businesses without the certainty they need.
Why Businesses Are Moving Away From CEST
Another concern is that the underlying logic of CEST has not been substantially updated since November 2019. Since then, IR35 and employment status case law have continued to develop. Several decisions have highlighted the complexity of status assessments and the difficulty of reducing them to a simple online tool.
The Professional Game Match Officials Limited litigation is one example of how employment status questions can turn on detailed factual and legal analysis. Where court decisions appear to take a more nuanced approach than CEST, businesses may be less willing to rely on the tool as their main method of IR35 assessment.
Employment Status Remains a Legal Judgement
CEST is also not mandatory. Employers can use other IR35 status assessment processes, provided they take reasonable care. That has encouraged some organisations to move towards more detailed compliance systems, independent advice, contractor questionnaires, working-practices reviews and documented status determinations.
For employers, the decline in CEST usage is a reminder that IR35 compliance cannot be treated as a tick-box exercise. Businesses engaging contractors should be able to show how status decisions were reached, what evidence was considered, and why a particular conclusion was reasonable.
The Importance of a Robust Assessment Process
The risk is not only getting the IR35 status decision wrong. It is also failing to demonstrate a robust process if HMRC later opens a compliance check. In practice, a well-documented IR35 assessment may be as important as the outcome itself.
The sharp fall in CEST usage therefore points to a wider shift. Many organisations appear to be moving away from sole reliance on HMRC’s tool and towards more comprehensive methods of managing IR35 risk.
Supportive Managers Linked to Higher Productivity and Retention
Separate research has highlighted the important role that line managers play in productivity, motivation and employee retention.
According to research by Reward Gateway | Edenred, employees with supportive managers are significantly more likely to perform well and remain with their employer. The findings suggest that employees with supportive managers are 74% more productive, 73% more likely to stay in their current role, and 71% more motivated to go beyond their normal duties.
Why Supportive Managers Matter
The research underlines a point that employers sometimes overlook. Workplace culture is not shaped only by senior leadership, policies or benefits packages. For many employees, the day-to-day experience of work is heavily influenced by their direct manager.
Managers are also often the first person employees turn to when a workplace issue arises. The research found that 38% of employees would approach their manager with a problem. That was higher than the proportion who would go to colleagues, senior managers, leadership teams or HR.
This matters because managers act as a practical bridge between the organisation and the employee. They communicate expectations, monitor workload, recognise effort, discuss progression and identify early signs of concern. Where managers are supportive and well trained, issues may be addressed before they become formal grievances, resignations or performance problems.
The Day-to-Day Role of People Managers
The research also shows how broad the manager’s role has become. Employees reported that managers keep them informed about company news, review progression, recognise effort, check workload and capacity, set goals and monitor wellbeing.
Those functions are central to engagement. Employees are more likely to remain motivated where they understand what is expected of them, feel recognised for their contribution and believe that their manager is paying attention to their workload and development.
Investing in Better Management
For employers, the message is clear. Investing in people management is not simply an HR initiative. It can have a direct impact on productivity, retention and workplace stability.
However, this depends on managers having the time, training and confidence to manage well. Employers should not assume that technical competence automatically translates into good people management. Line managers need support in communication, feedback, performance conversations, workload management, recognition and wellbeing.
The findings suggest that employers looking to improve productivity and retention should look carefully at the quality of day-to-day management. A supportive manager can make a significant difference to how employees experience work, how problems are raised, and whether staff choose to stay.
Employers: What This Means
Employers should not treat IR35 compliance as a tick-box exercise or rely on CEST alone where the facts are complex. Separately, organisations should recognise that day-to-day line management has a direct effect on productivity, engagement and retention.
- Review contractor arrangements carefully, including contracts, working practices, control, substitution, mutuality of obligation and financial risk.
- Keep written records showing how each IR35 decision was reached and what evidence was considered.
- Consider independent advice or more detailed assessment processes where CEST produces an indeterminate result or the engagement is high-risk.
- Invest in line manager training so managers can communicate clearly, recognise effort, monitor workload and support employee wellbeing.
