HMRC’s CEST Tool Found to be Incorrect by Tribunal Judge


A judge presiding over an employment tribunal has found that HMRC’s Check Employment Status for Tax (CEST) tool gave an incorrect decision.

Contractor Tony Elbourn was engaged by agency Qualserve Consulting Ltd to complete a contract for their client, the Met Office. Under the public sector off-payroll rules, the Met Office were responsible for assessing Mr. Elbourn’s IR35 status and after CEST returned a clear verdict that IR35 applied, Mr. Elbourn was treated as “employed for tax purposes”.

This meant that PAYE tax and NICs had to be deducted from Mr. Elbourn’s contract rate before payment to his limited company. It also meant that the fee payer (Qualserve) had to pay employer’s NI on any payments made. Qualserve insisted on deducting employer’s NI from Mr. Elbourn’s rate.

Mr. Elbourn appealed to the tribunal claiming unlawful deduction of wages on the grounds that employer’s NI should not have been deducted. He lost his appeal, because Judge O’Rourke found that he was self-employed. In other words, the judge found that IR35 did not apply.

We’re sure Mr. Elbourn doesn’t mind losing in this case, because he now has irrefutable proof of his IR35 status, and since IR35 did not apply he’s due a refund of around £9,500 in tax and NICs that were incorrectly deducted. So, it turned out well for Mr. Elbourn, but the consequences for others could be less positive.

Consequences for HMRC

This principle, that an employment status claim can be used to challenge an IR35 decision by forcing the respondent to argue that the contractor is self-employed, has potentially dire consequences for HMRC. Exactly how bad it is will depend on how many contractors have been affected by incorrect CEST decisions, and how many of those are willing to follow Mr. Elbourn’s example.

For those who have been taking notice, it is clear that HMRC’s interpretation of IR35 is often different from that of the courts. The CEST tool has been criticised since its launch in 2017 for using HMRC’s interpretation, and ignoring some case law.

HMRC have consistently defended CEST, claiming, “The CEST digital service was rigorously tested throughout development, with input from external stakeholders, in accordance with government data standards prior to release. Results have been tested by HMRC against known case law and settled cases.”

Some commentators have publicly doubted this claim for some time, and now CEST has been found wanting by a judge those critics will be even more difficult to silence. With potential IR35 reform once again looming large, this ruling certainly does nothing to help HMRC’s case.  

Consequences for Recruiters and Clients

This case arguably ended well for Qualserve too. PAYE tax and NICs, and the contested employer’s NIC’s, are no longer due so while they do have to refund the deductions they can expect to be refunded themselves by HMRC.  

Recruiters and clients should take note, though, that it just got a lot riskier to neglect their compliance checking. It’s free to appeal to an employment tribunal and, like Mr. Elbourn, contractors could find themselves in a “win – win” position. Emboldened by this ruling, many more contractors could go to employment tribunals where they feel the rules haven’t been followed correctly.  

We advise all recruiters to assess their risks and ensure their policies and processes are fully compliant. This could mean obtaining in-house expertise, or partnering with experts like Orange Genie Compliance. Either way, it’s vital that recruiters protect themselves and their clients from this kind of risk, and compliance is the only sure protection.

If you have any questions about this or any issue, or if we can help in any way, please contact our expert team on 01296 468 483 or email

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