Author: Glenn

HMRC’s CEST tool gets a revamp from 30 April 2025, with clearer questions and updated guidance to help users decide employment status for tax—plus stronger backing from HMRC.

In a Written Ministerial Statement delivered on 28 April, the Exchequer Secretary to the Treasury announced a series of administrative and simplification measures designed to advance the government’s commitment to modernising the tax and customs systems.

Among these measures is an important update to HMRC’s Check Employment Status for Tax (CEST) digital tool, set to take effect from 30 April 2025. The CEST tool plays a key role in helping users determine whether a worker should be treated as employed or self-employed for tax purposes across both the private and public sectors.

The forthcoming changes aim to improve usability and clarity, making it more accessible and efficient for individuals and organisations alike. In conjunction with these technical improvements, HMRC will issue updated guidance to support users in navigating the revised set of questions, ensuring they are better equipped to use the tool correctly and confidently.

The service provides HMRC’s view as to whether IR35 legislation applies to a particular engagement and whether a worker should pay tax through PAYE as well as helping to determine if the off-payroll working in the public sector rules apply to a public sector engagement. HMRC has confirmed that it will stand by the outcome produced by the CEST tool, provided that the information entered is accurate and complete. However, HMRC will not stand by the results of contrived arrangements and designed to get a particular outcome from the service.

The service can be used by a variety of users, including:

• Workers providing services;
• Individuals or organisations engaging workers; and
• Employment agencies placing workers with clients.

HMRC has delayed mandatory payrolling of benefits in kind by a year to April 2027, giving employers and software providers more time to prepare. Penalties will be eased in the first year.

The requirement to report Income Tax and Class 1A National Insurance Contributions for most BiKs and expenses through Real Time Information (RTI) will now begin from 6 April 2027, rather than 6 April 2026 as previously announced.

From April 2027, employers will report BiKs and expenses via the Full Payment Submission (FPS), aligning with the method currently used for reporting salaries. The number of RTI fields will be expanded to reflect the data currently captured through P11D and P11D(b) forms.

The deferral is intended to give payroll professionals, software providers, tax agents and others additional time to prepare for the transition. From April 2027, employers will also have the option to payroll employment-related loans and accommodation on a voluntary basis.

To support a smooth rollout, HMRC will waive penalties for inaccuracies related to mandatory payrolling for 2027–28, provided there is no evidence of deliberate non-compliance. However, existing late filing, late payment penalties, and interest will continue to apply.

HMRC has confirmed that its Basic PAYE Tools software will also be updated to support payrolling of benefits in kind from April 2027.

The government has scrapped plans for detailed PAYE reporting of employee hours from April 2026, citing concerns over cost, complexity, and practicality. Employers will stick with current rules.

As part of the Spring 2025 Tax Update: Simplification, Administration and Reform summary, the government confirmed that it will no longer proceed with the previous governments plans to mandate more detailed reporting of employee working hours through Pay As You Earn (PAYE) Real Time Information (RTI) submissions. 

Under the original proposals, employers would have been required to submit significantly more detailed employee hours data on the hours worked by each employee via RTI returns from 6 April 2026. These proposals were reflected in the draft Income Tax (Pay As You Earn) (Amendment) Regulations 2025, which were expected to formalise the changes in law. However, the government has now announced that it will not take these draft regulations forward, effectively shelving the proposed reforms.

The enhanced reporting requirements would have meant employers providing detailed data on actual hours worked per pay period, as opposed to the current obligation to report an employee’s normal working hours. Significant concerns were raised by employers, payroll providers, and representative bodies regarding the complexity, cost, and practicality of these changes. 

Employers will therefore continue to report normal hours worked using the existing RTI framework, without the need to supply more detailed information. 
 

The government wants your say on e-invoicing. Quicker payments, fewer errors, and better VAT reporting are on the table. A 12-week consultation could shape the future.

HMRC and the Department for Business and Trade (DBT) jointly launched a 12-week consultation earlier this year. The consultation is examining the broader adoption of electronic invoicing (e-invoicing) across UK businesses and public sector bodies. This is the first time UK businesses have been invited to share their views on how e-invoicing could be implemented and scaled nationally.

E-invoicing refers to the digital exchange of invoice data directly between buyers and suppliers. It has the potential to reduce paperwork, improve productivity, and help businesses get their taxes right first time. Benefits include fewer data and invoicing errors, more accurate VAT reporting, faster payments, and improved cash flow.

An example cited by HMRC highlights how an NHS trust processes e-invoices within 24 hours, compared to 10 days for paper invoices, resulting in invoices being paid almost twice as fast, while supplier queries have dropped by 15%.

The consultation seeks input on key issues such as:

• different models of e-invoicing;
• whether e-invoicing should be mandated or voluntary, and the appropriate scope of any mandate; and
• the potential for real-time digital reporting alongside e-invoicing.

The government is encouraging responses from businesses of all sizes, software providers, and other stakeholders to help shape future e-invoicing policy and adoption strategy.

The government is consulting on new VAT relief for goods donated to charities for free use. Could this fix an unfair gap in current rules? Have your say by 21 July 2025.

A new joint consultation from HM Treasury and HMRC, titled “VAT Treatment of Business Donations of Goods to Charity” has been launched. The consultation seeks to gather views on introducing a VAT relief for goods donated to charities by companies to give away free of charge or to use in the delivery of their services. The consultation is open until 21 July 2025.

Currently, VAT relief applies to goods donated to charity for resale (such as in charity shops), but not to those given away free of charge or used directly in charitable services. The government acknowledges that this creates an inconsistency. While the existing rules were originally designed to prevent VAT fraud, the consultation explores options for better alignment without weakening fraud safeguards.

The consultation is split in to four main sections:

1. To gather information about respondents and their experiences with donating or receiving goods.
2. To examine current VAT rules on donated goods used for charitable distribution or service delivery.
3. To set out the government's aims and proposes the scope of a new VAT relief.
4. To explore options for administering the relief and seek feedback on proportionate administrative arrangements.

The government encourages responses from all stakeholders, including charities, social enterprises, manufacturers, retailers, logistics providers, and industry bodies.