The CEST Tool After Its 2025 Update: Walking Through A Real Determination
The CEST Tool After Its 2025 Update: Walking Through a Real Determination in the UK
HMRC's Check Employment Status for Tax (CEST) tool was updated in May 2025 to reflect the Supreme Court's 2024 ruling in HMRC v PGMOL, specifically adding a new mutuality of obligation (MOO) gateway question at the start of the determination process. For the 2026/27 tax year, HMRC confirms it will stand behind results produced by the updated CEST tool provided the information entered accurately reflects the actual working arrangements. Understanding how the updated questions sequence works, and where the tool's outputs can still mislead, is essential for contractors, freelancers, and the businesses that engage them.
What Changed in the May 2025 CEST Update
Before the update, CEST opened with questions about personal service and control, treating mutuality of obligation as a largely implicit factor rather than a gateway test. The PGMOL ruling confirmed that MOO, in the sense of a basic wage-work bargain, is present in virtually every working arrangement during the period of work, and HMRC's Employment Status Manual was updated at ESM0543 to reflect this.
The May 2025 update added a specific MOO question early in the CEST journey. Users are now asked whether, during the period of the engagement, the worker is obliged to work and the engager is obliged to pay for that work. The question is deliberately basic: does a fundamental wage-work bargain exist? If the answer is no, the tool exits with an indication that there is no employment relationship to assess. If yes, the tool continues to the personal service and control questions.
In practice, this gateway question produces a "yes" result in almost every real engagement, because the basic wage-work bargain almost always exists once work has started. The significance of the update is not that it changes outcomes in the majority of cases; rather it reflects HMRC's updated legal position and makes CEST more defensible against challenges arguing it misrepresents case law on MOO.
The CEST tool itself is available on GOV.UK alongside guidance on interpreting results.
What this Widget is About: This interactive visual guide breaks down HMRC’s updated Check Employment Status for Tax (CEST) tool following the critical mutuality of obligation (MOO) gateway revision, helping UK contractors and businesses understand how genuine working practices dictate IR35 determinations. You can step through a realistic IT contractor scenario stage by stage to see how key factors like substitution, control, and financial risk tip the balance between inside and outside status. Use the built-in simulator to test your own working arrangements, toggle contractual terms against day-to-day reality, and generate an immediate risk profile with tailored compliance takeaways.
Walking Through a Real Determination: An IT Contractor Scenario
The following example is specific and realistic rather than generic. It is designed to show exactly which questions the updated CEST asks, what the natural answers look like for a typical contractor, and where the logic leads.
The scenario: A software developer operates through a personal service company (PSC). She has a two-year contract with a financial services firm to develop a new client portal. Her contract runs from October 2025 to October 2027. She works on-site three days per week at the client's offices and remotely for two days. The client's technical lead directs what features she should build and in what order. She uses the client's development environment, security credentials, and software licences for the work. She has no other clients during this contract period and has not sent a substitute.
Stage 1: The MOO Gateway
Q: Is there an obligation for the worker to work and an obligation for the client to pay? A: Yes. She is expected to work three days on-site and two remotely each week. The client pays her PSC monthly based on hours logged.
Result: MOO gateway passed. Tool proceeds to the next section.
Stage 2: Personal Service
Q: Would the client accept a substitute if the worker was unable to work?
This is where many contractors either answer incorrectly or where the real facts diverge from the contractual terms. The contract may contain a substitution clause, but the tool asks what would happen in reality. If the client has never seen a substitute, would not accept an unknown developer into their secure environment, and relies specifically on this developer's knowledge of their codebase, the honest answer is "No, the client would not accept a substitute."
A: No, the client would not accept a substitute.
Result: Personal service established. Tool proceeds.
Stage 3: Control
The control section asks multiple questions in sequence. These cover:
Q: Does the client decide where the worker does the work? A: Partly. Three days must be at the client's office (their requirement), two days are remote. The honest answer here is "Sometimes yes, sometimes no" or a specific choice that reflects partial control.
Q: Does the client decide when the worker does the work? A: Yes. The contract specifies that she must be available during the client's core hours on the three on-site days.
Q: Does the client decide how the worker does the work? A: Partly. The client's technical lead sets priorities and specifies which technical standards to use. The developer chooses her own coding approach within those constraints.
This is where the updated CEST requires careful thought. The tool distinguishes between control over the output (what is delivered and when) and control over the method (how the work is carried out). If the client only sets the end objective, that is less indicative of employment. If the client specifies the working methods in detail, that points more strongly toward employment.
In this scenario, the technical lead's direction of priorities and technical standards goes beyond setting objectives. The tool is likely to record this as significant client control.
Q: Does the client have the right to move the worker to a different task? A: Yes. The technical lead can redirect her to different parts of the portal project as business priorities shift.
Result: Significant control identified. Tool proceeds to additional circumstances.
Stage 4: Additional Circumstances
Q: Does the worker have to correct defective work in their own time and at their own cost? A: Yes. If a feature she built has a bug, she is expected to fix it without charging additional time.
This is an important financial risk indicator. An employee would normally be paid to fix defects during working hours. A genuinely self-employed contractor bears the financial risk of remedying poor work in their own time.
Q: Does the worker provide their own equipment? A: No. She uses the client's development environment, laptops, and software licences.
Q: Has the worker paid for training to work for this client? A: No.
Q: Do the financial arrangements point to employment or self-employment?
The tool asks about how payments are structured (fixed daily/hourly rates versus project-based fees), whether there are management or supervision structures that resemble employment, and whether the worker benefits from employee-type policies.
In this scenario, she is paid a daily rate. She attends the client's team meetings, is included in internal communications, and uses the company's security and compliance infrastructure. These factors collectively point toward employment-like arrangements.
The CEST Result
Based on the answers above, the CEST tool would very likely produce a determination of: IR35 applies. This engagement should be treated as employment for tax purposes.
The basis would be the combination of: no substitution right, significant control over when and where the work is done, client direction of priorities and technical methods, client-provided equipment, and financial arrangements resembling employment.
Where the CEST Output Can Still Mislead
The May 2025 update improved the tool's MOO handling, but the tool retains limitations that practitioners encounter regularly.
The tool does not properly handle situations where MOO is absent for the overarching relationship, even if present during individual engagements. An independent consultant who works for a client on an ad hoc project basis, with no obligation on either party to continue after each project, may have a strong self-employment case overall, but CEST will still assess the individual engagement and may produce an "employed" result for that specific period.
The tool also struggles with hybrid arrangements. A developer who spends 60% of her time on the client's premises but genuinely sets her own hours, uses her own equipment for remote work, and has other clients simultaneously may find the tool produces a result that does not accurately reflect the balance of factors. The question set can only approximate the nuance of a full employment status analysis.
HMRC's Employment Status Manual at ESM3250 explicitly acknowledges that CEST cannot replicate a complete legal assessment and that the manual itself provides the authoritative framework for determining status.
One consistent error pattern is answering questions based on the written contract rather than the actual working practices. The tool asks "what happens in practice." Contracts containing substitution clauses that have never been exercised in reality, or equipment provisions that the client informally overrides by providing their own kit, produce misleading results when the contractual position is entered rather than the actual one.
What this Widget is About: This interactive visual explainer walks UK taxpayers, contractors and engagers through HMRC’s Check Employment Status for Tax (CEST) tool following its May 2025 update, which introduced a new mutuality of obligation gateway question in response to the Supreme Court’s PGMOL ruling. It sets out the key changes, then takes you step by step through a realistic IT contractor scenario so you can see exactly how the updated questions sequence works and what a typical determination looks like in practice. Simply use the tabs at the top to move between sections—Overview, What Changed, Real Walkthrough, Limitations, HMRC Protection, Scotland & Wales, and Key Takeaways—and expand the stages in the walkthrough to explore the questions and answers in detail. Always answer CEST on the basis of actual working arrangements rather than contractual wording alone, and treat the tool’s output as a useful starting point that still requires careful documentation and, where necessary, professional advice.
What a CEST "Outside IR35" Result Does and Does Not Protect
Where CEST produces a determination that IR35 does not apply, HMRC has confirmed it will stand behind that result, provided the information entered was accurate and the actual working arrangements match the scenario described. This is meaningful protection for medium and large private sector engagements and all public sector engagements, where the fee payer (the client or agency) bears the responsibility for making the determination.
It does not protect against a future tribunal finding differently if the actual arrangements turn out to differ from what was entered into the tool. The protection is contingent on accuracy.
Where HMRC later discovers that the answers given did not reflect reality (for example, a substitution right was entered as genuine when it had never been exercised and the client would not have accepted a substitute), the determination is not binding.
For personal service companies still operating outside IR35, the tool result should be documented at the time it is made, along with the answers given and the reasons for those answers. If the working arrangements subsequently change, a new determination should be run. A determination that is months old and does not reflect how the work is actually being delivered offers very limited comfort if HMRC later opens an enquiry.
Scottish and Welsh Contractors: No Difference in CEST Application
CEST assesses employment status, which determines whether PAYE and National Insurance Contributions (NIC) apply. These are UK-wide obligations. The CEST tool produces the same type of determination for a contractor in Edinburgh or Cardiff as for one in London. The only practical difference for Scottish contractors is that the income tax rates and bands on any deemed employment income will reflect Scottish income tax rates, which differ from the rest of the UK.
A Scottish contractor whose engagement is caught by IR35 in 2026/27 will have PAYE deducted at Scottish rates (including the intermediate rate of 21% and higher rate of 42% on the applicable bands) rather than UK-wide rates. The fee payer must apply the correct Scottish rates using the S-prefixed tax code where the contractor is Scottish resident.
Key Takeaways
The May 2025 CEST update added a mutuality of obligation gateway question reflecting the PGMOL Supreme Court ruling. In most real engagements, this gateway is passed immediately, and the determination continues to personal service and control questions.
HMRC confirms it will stand behind CEST results provided the information accurately reflects the actual working arrangements. This protection is contingent on honesty and accuracy, not on what the contract says.
The tool determines employment status based on what actually happens, not on contractual terms. Entering contractual provisions that do not reflect working reality produces an unreliable determination.
The CEST tool's key limitation is that it cannot replicate a full legal assessment. Situations involving partial control, ad hoc working patterns, or nuanced financial risk arrangements may produce results that do not fully capture the balance of factors a tribunal would weigh.
Any CEST determination should be documented contemporaneously, with the answers recorded alongside the factual basis for each. If working arrangements change, a new determination should be run.
FAQs
Has CEST changed recently and is it worth using now?
HMRC updated CEST in May 2025 to add a mutuality of obligation gateway question, reflecting the Supreme Court's 2024 ruling in HMRC v PGMOL. The updated tool is more consistent with current case law. HMRC confirms it will stand behind CEST results where the information entered is accurate.
Does HMRC always accept CEST results as binding?
HMRC will stand behind a CEST result where the answers accurately reflect the actual working arrangements. If the real-world situation differs from what was entered into the tool, the result is not binding. If you enter contractual terms that are not followed in practice, the result will not protect you.
What did the 2025 CEST update actually change?
The main change was the addition of a mutuality of obligation question at the start of the determination, prompted by the Supreme Court's PGMOL ruling. The question asks whether a basic wage-work bargain exists during the engagement. In most cases the answer is yes, and the tool proceeds to assess personal service and control as before.
If CEST says outside IR35 does that mean I don't have to worry?
Not entirely. The CEST result provides protection from HMRC challenging a determination made in good faith with accurate information. It does not protect against future changes in working arrangements, nor does it override a tribunal's own assessment if the actual facts differ from those entered into the tool.
What are the biggest mistakes people make when using CEST?
The most common error is answering questions based on the written contract rather than actual practice. If the contract has a substitution clause but the client would never accept a substitute, answering "yes, a substitute would be accepted" produces an inaccurate and misleading result.
Is there a difference between using CEST in Scotland and England?
CEST itself operates identically across the UK. Employment status is a UK-wide determination. The difference for Scottish contractors is that any PAYE arising from an inside-IR35 determination will use Scottish income tax rates and codes.
Should I rely on CEST alone or take additional advice?
CEST is a useful starting point and provides HMRC-backed protection where the answers are accurate. For complex arrangements, where factors point in different directions, or where the contract value is high, a professional employment status analysis based on the full facts is more reliable than CEST alone.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
Disclaimer:
This article explains the general position for the 2026/27 tax year and is accurate at the date of publication. Tax outcomes depend on individual circumstances, and rules change. It is not advice for your situation. For guidance on your own position, speak to a qualified accountant or tax adviser. My Tax Accountant accepts no liability for action taken solely on the basis of this article.
