HMRC's Check Employment Status for Tax (CEST) tool is shedding users at a rate that demands an explanation. Figures obtained via a Freedom of Information request by compliance specialist IR35 Shield and reported by The Register show that CEST determinations fell from 458,894 in 2023/24 to 135,178 in 2025/26: a 71% drop in two years. That is not background noise. It is contractors, hiring managers, and recruitment firms concluding that a tool backed by HMRC is no longer the most defensible way to manage a decision that carries real tax liability.

The context matters. The off-payroll working rules, now codified in Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) as extended to the private sector by the Finance Act 2021, shifted IR35 status decisions from contractors to engagers. That raised the stakes for every party in the chain. When the assessment method is the official HMRC questionnaire, you might expect usage to rise. The fact it has collapsed instead points to a loss of confidence in what that questionnaire actually measures.

What CEST is meant to do (and what it skips)

CEST is HMRC's online tool for determining whether a contractor working through a personal service company (PSC) falls inside IR35, broadly taxed as an employee under ITEPA 2003 Chapter 10, or outside it, treated as a genuinely self-employed business. HMRC has consistently stated it will stand behind a CEST determination, provided the inputs are accurate and the working arrangements described genuinely reflect reality.

The persistent criticism, however, is that CEST was built on a narrower reading of employment-status case law than the tribunals themselves now apply. The central sticking point is mutuality of obligation: the question of whether the engager is obliged to offer work and the worker obliged to accept it. The Supreme Court addressed mutuality of obligation directly in PGMOL v HMRC [2023] UKSC 26, a ruling that clarified how courts weigh this test when determining employment status. Separately, the Court of Appeal's decision in Atholl House Productions Ltd v HMRC [2022] EWCA Civ 501 sharpened how personal service and substitution clauses interact with that mutuality question. CEST's handling of these issues has long been regarded by IR35 advisers as too narrow. A contractor who passes CEST's questionnaire with an outside determination can, on these facts, still lose at tribunal. That is a structural problem no minor content update resolves.

Where contractors and engagers are going instead

The 71% decline in CEST usage is not simply a story of disengagement. Specialist IR35 compliance providers, employment-law solicitors, and accountancy practices now offer paid status reviews that explicitly weigh post-PGMOL case law. Larger end-clients, particularly those in financial services, pharmaceuticals, and technology, have built internal assessment frameworks grounded in legal opinion rather than CEST output.

That shift resolves one problem and creates another. The determinations that emerge are generally more defensible before an Employment Tribunal or the First-tier Tax Tribunal. They are also less consistent across engagements, slower to produce at scale, and harder for HMRC to audit systematically. For a contractor trying to get a signed contract in place before a project start date, waiting for a bespoke legal review introduces a friction that CEST, whatever its limitations, did not.

IPSE, the Association of Independent Professionals and the Self-Employed, has argued for several years that the off-payroll framework places an unreasonable compliance burden on engagers while leaving contractors with little recourse when they disagree with a determination. That structural tension is not resolved by contractors abandoning CEST; it is arguably amplified, because the alternative assessments are less transparent and harder to challenge.

For contractors and freelancers

If you work through a personal service company and your end-client is a public-sector body or a medium or large private business, the off-payroll rules under ITEPA 2003 Chapter 10 mean your client decides your IR35 status, not you. Your tax exposure is real regardless: a status determination that does not survive HMRC challenge can result in backdated income tax and National Insurance contributions, interest under the Taxes Management Act 1970, and potential penalties for the fee-payer and possibly the wider supply chain.

Practical steps worth taking before signing any new engagement:

• Ask which assessment method your client used. A determination based on CEST output carries a different level of defensibility from one supported by a formal legal opinion that has engaged with PGMOL and Atholl House. Both are answers, but they carry different weight if HMRC opens an enquiry.
• Read your Status Determination Statement (SDS) carefully. Under ITEPA 2003 s.61NA, your client must give you a written SDS with reasons. Vague reasoning, such as a bare conclusion with no analysis of control, substitution, or mutuality, is a warning sign worth querying in writing before you start work.
• Verify that your working practices actually match the contract terms. A substitution clause that no one in practice has ever tested, or a right to control clause that your day-to-day supervisor ignores, will not survive tribunal scrutiny even if the contract looks clean on paper.
• Model both scenarios on your day rate. An inside-IR35 engagement changes your net income materially once employer and employee NICs are accounted for. Running a salary calculation against both positions before negotiating your rate means you are pricing risk, not guessing at it.

For HR, hiring managers, and recruitment firms

For the end-client or fee-payer in a contractor chain, the IR35 liability sits squarely with your organisation under ITEPA 2003 Chapter 10. The 71% fall in CEST usage is a signal that the lowest-friction assessment method on the market is no longer the lowest-risk one. That is a distinction your legal and finance teams will care about if HMRC opens a compliance check.

Areas worth stress-testing inside your organisation:

• Audit your assessment methodology, not just individual assessments. If your default remains CEST, document the compensating controls in place: legal review of edge cases, sample audits, periodic re-assessment when working practices change. A blanket inside-IR35 policy is simpler to defend than a casually completed CEST, but it carries talent and cost implications that HR leadership should quantify.
• Trace the contract chain. Recruitment agencies sitting between you and the contractor often hold fee-payer status and inherit the liability that goes with it. Your SDS must travel down the chain promptly, in writing, with reasons, as required under ITEPA 2003 s.61NA(4). Delays or missing paperwork create exposure at every link.
• Factor in the talent consequence. Contractors who understand IR35 will price the risk of an inside determination into their day rate or walk away from engagements they regard as poorly assessed. If competitor engagers are producing outside determinations that are more robustly grounded in post-PGMOL case law, that is a hiring and retention story as well as a tax one.
• Maintain working-practice evidence. Substitution arrangements actually exercised, documented control over outputs rather than inputs, and project-based deliverable structures are all easier to argue before HMRC or a tribunal when they are evidenced, not merely contractual.

The bigger picture

A 71% drop in usage is the kind of data point that normally triggers a substantial product review. HMRC has periodically updated CEST and continues to stand behind results when inputs are accurate. But the gap that critics identify, between CEST's underlying logic and the way the First-tier Tax Tribunal, the Upper Tribunal, and now the Supreme Court actually reason about employment status, is not something a user-interface refresh closes. It is a question about which body of case law the questionnaire reflects, and whether that body is current.

The PGMOL ruling in particular raised the bar for how mutuality of obligation is tested in practice. Any tool built before that judgment, and not materially updated to reflect it, starts from a weaker evidential base. HMRC's Employment Status Manual (ESM) gives additional guidance, but the manual is not the tool, and practitioners working through complex engagements increasingly treat them as separate resources.

For now, the workable answer for both sides of the contractor relationship is similar: treat any single assessment tool as one input in a broader process, not as the final authority. The contract, the actual working practices, the SDS, and, where the commercial value of the engagement justifies it, a legal opinion that has engaged with the most recent tribunal and court rulings should all inform the determination. That is a higher compliance overhead than CEST offered. It is also a more honest reflection of the legal landscape that HMRC, employment tribunals, and the courts have built over the past three years.

Key takeaways

• CEST determinations fell from 458,894 in 2023/24 to 135,178 in 2025/26, a 71% drop in two years, based on FOI data obtained by IR35 Shield and reported by The Register.
• The Supreme Court's ruling in PGMOL v HMRC [2023] UKSC 26 and the Court of Appeal's decision in Atholl House Productions Ltd v HMRC [2022] EWCA Civ 501 are the key post-CEST case law developments that specialist advisers say the tool does not adequately reflect.
• Under ITEPA 2003 Chapter 10 (extended by Finance Act 2021), IR35 liability for private-sector engagements rests with the end-client or fee-payer, not the contractor.
• Contractors should request and scrutinise their Status Determination Statement under ITEPA 2003 s.61NA, verify that working practices match contract terms, and model inside versus outside net income before agreeing a day rate.
• HR and hiring teams should audit their assessment methodology rather than individual determinations, and ensure the SDS travels down the supply chain promptly with documented reasons.
• IPSE has consistently highlighted the structural compliance burden the off-payroll regime places on engagers; the CEST decline suggests that burden is increasingly being met through more expensive, less standardised routes.