IR35: Use of HMRC CEST software drops by greater than 70%, delayed FOI reveals
HM Income and Customs (HMRC) has lastly shared up to date utilization knowledge for its much-maligned on-line IR35 standing checker software by way of a Freedom of Data (FOI) response, following a 16-month push for the federal government company to launch it.
The figures, obtained by way of FOI by ContractorCalculator CEO Dave Chaplin, present that use of the software has dropped by 73% for the reason that 2021-2022 monetary yr, with a marked and acute decline in customers over the course of the previous 12 months.
The Examine Employment Standing for Tax (CEST) software, because it’s recognized, is meant to assist private and non-private sector organisations individually assess the IR35 standing of each single contractor they have interaction.
It does this by providing customers a a number of choice-style quiz in regards to the working preparations of the person contractor, earlier than processing the responses to return a results of inside IR35, exterior IR35 or undetermined.
The primary iteration of the software was controversially rolled out only one month earlier than a reform of how the IR35 guidelines work within the public sector got here into pressure in April 2017, and was roundly criticised from launch for being error-prone and unfit for goal.
In November 2019, HMRC launched a revamped model of CEST in preparation for extending the IR35 reforms to the non-public sector in April 2020.
The onset of the Covid-19 coronavirus pandemic prompted the federal government to delay the non-public sector roll-out of the IR35 reforms till April 2021.
Personal sector reforms
Throughout the 2020-2021 monetary yr, CEST returned a complete of 703,620 outcomes general, rising to a peak of 806,432 outcomes the next monetary yr – when the non-public sector reforms got here into pressure, the HMRC figures present.
Setting apart the outcomes that didn’t contain contractors supplying their companies by way of a restricted firm or middleman, CEST was used 458,413 occasions in the course of the 2020-2021 monetary yr, with 50% of customers being categorised as exterior IR35, 31% as inside IR35 and 19% returning an undetermined outcome.
Throughout the “peak” yr of 2021-2022, 512,025 contractors working by way of an middleman used CEST, with 55% decided to be working exterior IR35, 25% categorised as being inside IR35 and the remaining 20% undetermined.
By the 2023-2024 monetary yr, CEST utilization amongst this group of contractors dropped to 138,758, which is 73% decrease than the height utilization. The quantity being categorised as exterior IR35 had risen to 64%, whereas the quantity registered as inside IR35 had dropped to 17% – and 19% remained undetermined.
“This knowledge confirms what many within the contracting sector have lengthy suspected: confidence and use of HMRC’s CEST software have fallen,” stated Chaplin. “While market elements play their half, we’ve seen no proof of a collapse in contractor demand that might clarify a 73% drop in utilization. What’s extra probably, and what we’re seeing on the bottom, is that firms are extra knowledgeable about IR35 and the failings in HMRC’s software and usually are not utilizing it as a result of it doesn’t ship the understanding they want.”
HMRC’s take
HMRC, in the meantime, has a barely completely different tackle why utilization of CEST has been in decline since its “peak” yr of 2021-2022.
“We at all times anticipated use of the software to cut back as employers familiarised themselves with the 2021 off-payroll working reforms and the vast majority of those that use the software are happy with the service they obtain,” a spokesperson for HMRC informed Laptop Weekly.
What that assertion doesn’t account for is why utilization of CEST by PSC contractors has, on a year-on-year foundation, dropped by half (48%) between the 2023-2024 and 2024-2025 monetary yr, stated Chaplin.
“Utilization has dropped off by a half within the final year-on-year measure – a few years after the familiarisation with the reforms passed off,” he stated. “So [HMRC] claiming these left utilizing the software are happy is a rudimentary statistical mistake referred to as survivorship bias – mistaking a visual subgroup as consultant of the complete group.
“A reputable satisfaction measure ought to take account of the opposite half of people that selected to desert utilizing the software.”
Digging into the drops in utilization
Within the FOI response, the figures for the 2023-2024 yr are break up into two six-monthly durations, with an advisory observe that the April 2023 to October 2023 knowledge was recorded earlier than HMRC accomplished the migration of CEST to its Ocelot platform.
As reported by Laptop Weekly on the time, Ocelot is an in-house developed platform that’s billed by HMRC as “enabling the fast manufacturing of interactive steering” to make instruments like CEST simpler for customers to navigate.
The October 2023 to March 2024 knowledge can also be flagged as being recorded as soon as the Ocelot migration had been accomplished.
Laptop Weekly queried the drop in utilization since CEST was migrated to the Ocelot platform with HMRC, however the spokesperson didn’t instantly reply the query.
Delays and distractions
Following the November 2019 launch of the up to date CEST software, HMRC offered month-by-month utilization knowledge in regards to the software on a Gov.uk portal, however that stopped in September 2021.
Anybody wanting sight of these figures after that date might ask HMRC for them by way of the FOI scheme, which is a plan of action ContractorCalculator’s Chaplin has beforehand adopted.
In response, Chaplin was despatched an information dump by HMRC in March 2023 that contained utilization figures for the software protecting the interval as much as January 2023 in response to one among his FOI requests.
In February 2024, Chaplin made a follow-up request for the latest set of utilization figures for the software, however this was refused, as confirmed by paperwork seen by Laptop Weekly. The rationale given was that HMRC can be making the info publicly out there inside six months.
When the requested knowledge did not materialise in that timeframe, Chaplin acquired again in contact with HMRC, which responded the next month to say the delay was right down to the onset of the July 2024 normal election.
“It seems the earlier FOI motive for withholding the info (as a result of they already deliberate to publish it) fell away, and there was by no means any plan to publish it, in any other case they may have withheld them once more utilizing the identical motive,” stated Chaplin.
On 25 April 2025, HMRC had nonetheless not launched the requested figures, prompting one other FOI request from Chaplin. On Tuesday 5 June 2025, the company lastly despatched by the utilization figures, protecting the 2020-2021 monetary yr to April 2025, with an apology for the delay in passing them alongside.
The the explanation why the info has taken so lengthy to materialise is anybody’s guess, and additionally it is curious that – regardless of saying the info can be shared publicly – the CEST utilization tracker portal has nonetheless not been up to date since September 2021.
Talking to Laptop Weekly, Seb Maley, CEO of contractor insurance coverage firm Qdos, stated on condition that HMRC maintains it can at all times stand by the outcomes that CEST returns, the very fact utilization knowledge shouldn’t be publicly out there is inexcusable.
And now that knowledge has been shared, it highlights the disconnect between HMRC’s opinion on how good a job CEST does and the way it performs in real-life.
“HMRC has maintained the rhetoric that CEST is as much as the job. That is regardless of it nonetheless not aligning absolutely with case legislation and being unable to find out standing round one in 5 occasions and [its results] even being ignored in tribunals,” he stated.
“The fact is that CEST poses a danger to anybody who depends on it solely to find out IR35 or employment standing – no matter whether or not the software courses a contractor inside or exterior IR35,” he continued.
“This software could have a deciding say over how a lot tax many hundreds of contractors pay, which is without doubt one of the causes having a view over the way it’s used and the outcomes is so essential.”
