UK IR35 tool usage plummets 71% in two years

The UK’s Check Employment Status for Tax (CEST) tool, designed to help businesses determine whether contractors fall under the IR35 off-payroll working rules, has seen a dramatic decline in usage. Data obtained via Freedom of Information requests by tax advisory firm IR35 Shield reveals a 71% drop in determinations between the 2023-24 and 2024-25 tax years, from 458,894 to 135,178. The trend continued into 2025-26, with a further 43% decline during that period alone.

The figures suggest growing dissatisfaction with CEST among businesses, which are increasingly turning to third-party tools or broader compliance frameworks. IR35 Shield attributes the shift to persistent concerns over the tool’s reliability and legal defensibility, noting that its underlying logic has not been updated since November 2019. Despite court rulings challenging HMRC’s interpretation of IR35, the agency has not revised the tool to reflect these developments.

Why firms are abandoning CEST

The decline in CEST usage reflects broader frustrations with the tool’s limitations. IR35 Shield’s CEO, Dave Chaplin, stated that most firms his company engages with are either lifting blanket bans on contractors or moving away from CEST entirely. "The majority of firms we speak to for the first time are either lifting blanket bans or seeking to move away from using CEST, having realized it is not compulsory to use, nor does it give them the level of certainty they need," Chaplin said.

One recent case highlights the tool’s shortcomings. In a dispute involving Professional Game Match Officials Limited (PGMOL), CEST would have returned an indeterminate result despite the court reaching a definitive ruling. Such inconsistencies have eroded confidence in the tool’s ability to provide clear guidance, particularly in complex cases.

HMRC’s own guidance has also faced criticism. A 2022 report by the Public Accounts Committee (PAC) found that government departments owed HMRC £263 million in unpaid taxes for the 2020-21 period due to incorrect IR35 assessments. The PAC attributed part of the problem to CEST’s design, noting that its questions were difficult to interpret and its accompanying guidance was overly general and not integrated into the tool itself.

The shift to alternative compliance methods

As CEST’s usage declines, firms are adopting a range of alternative approaches to IR35 compliance. Some are investing in third-party status assessment tools, which often provide more detailed analysis and legal support. Others are implementing broader compliance frameworks, including internal audits and legal reviews, to mitigate the risk of misclassification.

The move away from CEST is not uniform, however. Some businesses, particularly smaller firms with limited resources, continue to rely on the tool due to its cost-free availability. However, larger organizations—especially those with significant contractor workforces—are increasingly prioritizing legal certainty over convenience, given the financial and reputational risks of non-compliance.

What to watch

The ongoing decline in CEST usage may prompt HMRC to revisit the tool’s design or update its guidance. However, given the agency’s historical reluctance to revise the tool, significant changes appear unlikely in the near term. Instead, the market for alternative compliance solutions is expected to grow, with firms continuing to seek tools that align more closely with judicial interpretations of IR35.

For now, businesses remain caught between HMRC’s guidance and the courts’ rulings, underscoring the need for robust compliance processes that extend beyond reliance on any single tool.