Last updated: 22 May 2026
Employers in the public sector and private sector employers turning over more than £15m are now responsible for determining contractors’ IR35 status and tax liability.
Many companies turn first to the HMRC Check Employment Status for Tax (CEST) for help with this. CEST is an online multiple-choice questionnaire designed to assess a contractor’s employment status in relation to off-payroll working rules (IR35).
The problem is that, for around one in five tests, CEST can’t make a determination.
You need to know prior to engagement whether the working relationship you have with a contractor is within IR35. If it is, you as the end client (or the fee payer if there is a labour supply chain) are legally obliged to deduct income tax, National Insurance contributions and (if applicable) the Apprenticeship Levy from your contractors.
By searching for and finding this page, we assume that the CEST tax tool has not:
- Been able to determine a status based upon your responses or
- Provided detailed guidance on how you can find a reliable answer.
Don’t worry – you’re not alone. Let’s look a little further into the CEST service, why it returns so many “don’t knows” and why you shouldn’t really trust it that much in the first place.
When should you run IR35 tests on off-payroll staff?
IR35 applies in cases where there is an intermediary between a contractor you take on and your company.
That intermediary could be a personal service limited company, an umbrella company or a recruitment agency.
Which companies need to check for IR35 status and which ones don’t?
Public sector organisations and companies with a turnover of more than £15m are now almost always responsible for determining the IR35 status of their contractors.
If you declare a contractor relationship outside IR35 and HMRC deems it inside, you’ll have to pay backdated income tax, National Insurance contributions and (if applicable) the Apprenticeship Levy from when the work started. There’ll be a hefty fine to pay on top as well.
Contractors providing services to smaller businesses need to carry out an IR35 self-determination assessment, a bit like a version of Self Assessment.
If your contractor deems their relationship with you outside IR35 but HMRC later deems it inside, your contractor bears the financial risk in most cases.
The principle of reasonable care when assessing IR35
Answer all questions accurately on HMRC’s CEST tool and, in the vast majority of cases, you’ll get an accurate assessment.
But CEST really struggles to work out whether a contractor is inside or outside IR35 for tax purposes in more finely balanced cases. Borderline tests are where many employers get themselves into trouble.
You must carry out your assessment with “reasonable care” (as defined by the HMRC Employment Status Manual). You might think that performing a CEST test would constitute reasonable care but it doesn’t.
The problem is that, although HMRC defends the efficacy of CEST tests, it does not record them. If you include a copy of your CEST result in your defence against an accusation of making an incorrect judgement, that won’t matter to the taxman.
Therefore, IR35 experts urge businesses not to rely solely on the government’s tool when assessing whether someone should be treated as a self-employed contractor or a permanent staff member.
And that’s even if you get a conclusive result. If they later take action against you, they’re likely to accuse you of not filling in the test accurately in the first place.
Has HMRC taken reasonable care with their CEST tool?
CEST is a multiple-choice test and, no matter how cleverly designed, these types of test are never suitable for providing clear answers to complex questions.
We can see this in the results it produces: in nearly a fifth of cases, it delivers an undetermined outcome.
Therefore, employers should trust the status decisions CEST outputs at their peril.
There are three possible status decisions with CEST:
- Inside IR35
- Outside IR35
- Unable to Determine
Between 25 November 2019 and 31 August 2021, the CEST tool was used 1,837,488 times. 49% of tests came back with the answer “Outside IR35” and 30% “Inside IR35”, while 21% — more than one in five — came back “Unable to Determine”.
More recent figures show the trend has continued. Usage has since collapsed by more than 73% from its 2021-22 peak, and in 2023-24 (the most recent year for which FOI data is available) 64% of CEST tests returned “Outside IR35”, 17% “Inside IR35” and 19% “Unable to Determine” — the “undetermined” share has barely shifted in five years.
IR35 enforcement is rigorously pursued. That’s because HMRC genuinely believes that there is a vast black economy of well-paid independent IT, marketing and other experts engaging in conspiracies with employers to scam the system. It is a particular enforcement priority for them.
If that is the case, doesn’t finding 64% of contracts to be outside IR35 seem a bit high to you?
Critics of CEST have long argued that it produces these distortions because it assumes Mutuality of Obligation (MOO) exists in every contractual arrangement — a position that recent rulings have made hard to sustain.
CEST is out of step with current case law
CEST’s underlying logic hasn’t been updated since November 2019 — yet two significant rulings in Professional Game Match Officials Ltd v HMRC have reshaped the employment-status landscape since.
In September 2024, the Supreme Court (2024 UKSC 29) confirmed that mutuality of obligation and control can exist in surprisingly narrow, match-by-match engagements — apparently strengthening HMRC’s hand. But on 1 May 2026, the First-tier Tribunal ruled on remit that even where MOO and control are present, the overall picture of the working relationship can still point to self-employment (2026 UKFTT 654 (TC)). HMRC lost the £584,000 it had been pursuing, and has until mid-June 2026 to decide whether to appeal.
CEST has been updated for none of this. HMRC’s April 2025 refresh of the tool changed only the user interface — the underlying employment-status logic still reflects HMRC’s pre-2022 view of the law. For finely balanced engagements, that gap matters: a CEST verdict (or non-verdict) sits at odds with how an actual tribunal would now reason through the same facts.
What to do when CEST returns “Unable to Determine”
When CEST can’t reach a verdict, you’re still on the hook for a defensible IR35 determination. A practical sequence:
- Re-run the test with sharper inputs. CEST sometimes resolves when fed clearer detail on substitution, control, MOO and financial risk. Make sure your inputs reflect actual working practice, not just the wording of the contract.
- Document each status factor independently. Treat MOO, control, personal service, financial risk, equipment, integration and exclusivity as separate evidential strands. Keep the contract, working-practice notes and any relevant correspondence.
- Seek a specialist IR35 review. An expert can reach a defensible conclusion where CEST won’t — and a reasoned external opinion stands up far better in a dispute than an “Unable to Determine” screenshot.
- Issue a clear Status Determination Statement (SDS). State your conclusion and your reasons. A properly reasoned SDS — even on borderline facts — is what evidences reasonable care; a blanket determination is what doesn’t.
- Keep the audit trail. HMRC doesn’t store CEST results, so retain your own copy of every test, the inputs you used, the rationale you applied and the evidence behind your final SDS.
Your approach to CEST
CEST has its uses, but don’t lean on it alone for a definitive IR35 determination. Treat the result as one input – record it in your audit trail alongside the evidence you used to demonstrate reasonable care.
CoComply gives you dedicated IR35 support before and during every contractor engagement, so each determination stands up to scrutiny.
How CoComply helps
- CEST integration – capture and document every determination in one place.
- Vendor audit tool – surface compliance risks across your contractor supply chain.
- Statement of Work (SOW) analysis – flag commercial and compliance issues in SOWs before they bite.
- Customisable dashboard – real-time insight into your contingent workforce, spend and project trends.
Want to talk to an IR35 determination specialist? Get in touch.
