Category: Employment & Payroll

How to check employment status

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.

Tax relief if required to work from home

If employees must work from home and their employer does not reimburse certain costs, they may be entitled to claim tax relief. Understanding the rules for household expenses, business travel, and equipment purchases is key to making a successful claim.

Eligibility to claim tax relief applies when homeworking is a requirement of the role. This may be the case if an employee's job necessitates living at a distance from the office, or if the employer does not maintain a physical office. Tax relief is generally not available where homeworking is a personal choice, even if permitted under the terms of the employment contract or where the office is occasionally at capacity.

Employees may claim a flat-rate tax relief of £6 per week (or £26 per month for monthly-paid staff) to cover additional household costs incurred as a result of working from home, without the need to retain detailed expense records. The value of the relief depends on the individual’s highest marginal rate of tax. For example, a basic-rate taxpayer (20%) would receive £1.20 per week in tax relief (20% of £6). Alternatively, individuals may opt to claim the actual additional costs incurred, provided they can supply evidence to HMRC in support of the claim. Backdated claims for up to four previous tax years are also permitted.

Tax relief may also be available for the use of a personal vehicle, a car, van, motorcycle, or bicycle, when used for business purposes. Relief is not available for ordinary commuting between home and a regular place of work. However, where travel is to a temporary workplace, or where the vehicle is used for other qualifying business journeys, tax relief may apply.

In addition, employees may claim tax relief on the cost of equipment purchased personally for work-related purposes, such as a laptop, office chair, or mobile phone, provided these are used exclusively or primarily for business use.

Statutory Redundancy rights

Redundant? You could receive up to £30,000 tax-free, whether it’s statutory pay or a better deal from your employer. Know your rights, check the 2025-26 limits, and understand how your age and service affect your payout.

There is a tax-free threshold of £30,000 for redundancy payments, regardless of whether the payment is your statutory redundancy pay, or a more generous amount offered by your employer.

If you have been employed for two years or longer and are made redundant, you are typically entitled to redundancy pay. The legal minimum you are entitled to receive is known as "statutory redundancy pay." However, there are exceptions to this entitlement, such as if your employer offers to retain you in your current role or provide suitable alternative employment, and you refuse the offer without a valid reason.

The amount of statutory redundancy pay is determined by your age and length of service, and is calculated as follows:

• Under 22: Half a week’s pay for each full year of service
• Aged 22 to 40: One week’s pay for each full year of service
• Over 41: One and a half weeks’ pay for each full year of service

If you were made redundant on or after 6 April 2025, your weekly pay is capped at £719. A maximum of 20 years of service taken into account. The maximum statutory redundancy payment for the tax year 2025-26 is £21,519.

Employers may opt to offer a higher redundancy payment, or you may be entitled to an increased amount based on the specific terms outlined in your employment contract.

Don’t forget to update your NMW and NLW wage rates

Minimum wage rates rose on 1 April 2025. NLW now £12.21, and big increases for younger workers too. Make sure you're compliant – underpayment can cost up to £20K per worker and a director ban. Time to check your payroll!

Employers must ensure they are paying staff at least the National Minimum Wage (NMW) or National Living Wage (NLW). The NMW and the NLW are the minimum legal amounts that employers must pay their workers.

The new NMW and NLW rates came into effect on 1 April 2025. The NLW rate has now increased from £11.44 to £12.21. This represents an increase of 77p or 6.7%. The NLW is the minimum hourly rate that must be paid to those aged 21 or over. The increase represents a pay rise of over £1,400 a year for someone working full-time and earning the NLW.

The NMW (for 18-20 year olds) has increased from £8.60 to £10.00 an hour. This is largest increase ever in the NMW (a whopping 16.3% increase) that means younger workers having their pay boosted by up to £2,500 a year. This increase is part of a move to narrows the gap in wage rates for 18-20 years olds and the NLW and ultimately create a single adult wage rate for all those aged 18 and up. 

The NMW rates for 16 to 17 year olds increased from £6.40 to £7.55 – an increase of £1.15 or 18% per hour. The Apprentice Rate mirrors this increase.

It is important that employers ensure they have updated their wage rates and that they pay the legal minimum wage rates. There are significant penalties for employers who are found to have paid workers less that they are entitled to by law. If an employee has been underpaid, the employer must pay any arrears without delay. There are penalties for non-payment of up to 200% of the amount owed. The penalties are reduced by 50% if all of the unpaid wages and 50% of the penalty are paid in full within 14 days.

The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face up to a 15-year ban from being a company director as well as being publicly named and shamed.

Tax-free redundancy payments

If redundancy strikes, you could receive up to £30,000 tax-free. Whether it’s statutory or a more generous employer offer, understanding your entitlements and the latest caps on weekly pay can make a real difference to your finances.

There is a tax-free threshold of £30,000 for redundancy payments, regardless of whether the payment is your statutory redundancy pay, or a more generous amount offered by your employer.

If you have been employed for two years or longer and are made redundant, you are typically entitled to redundancy pay. The legal minimum you are entitled to receive is known as "statutory redundancy pay." However, there are exceptions to this entitlement, such as if your employer offers to retain you in your current role or provide suitable alternative employment, and you refuse the offer without a valid reason.

The amount of statutory redundancy pay is determined by your age and length of service, and is calculated as follows:

• Under 22: Half a week’s pay for each full year of service
• Aged 22 to 40: One week’s pay for each full year of service
• Over 41: One and a half weeks’ pay for each full year of service

Weekly pay is capped at £700, with a maximum of 20 years of service considered. The maximum statutory redundancy payment for the tax year 2024-25 is £21,000, with slightly higher limits applicable in Northern Ireland. The cap on weekly pay for redundancy calculations is expected to increase in April 2025, though details have yet to be announced.

Employers may opt to offer a higher redundancy payment, or you may be entitled to an increased amount based on the specific terms outlined in your employment contract.

Claiming tax relief for job expenses

Employees working from home may be eligible to claim a tax deduction for certain job-related expenses. If your employer does not cover these costs or allowances, you have the option to claim tax relief directly from HMRC.

You may qualify for tax relief if you are required to work from home. This could apply if your job necessitates living far from the office or if your employer does not have an office. However, tax relief is generally not available if you opt to work from home, even if your employment contract permits it or if your office is occasionally full.

You can claim tax relief for £6 per week (or £26 per month if paid monthly) to cover additional costs associated with working from home, without the need to maintain specific records. The amount of tax relief you receive depends on your highest tax rate. For example, if you pay the basic rate of 20% tax, you will receive £1.20 per week in tax relief (20% of £6). Alternatively, you can claim the actual amount of additional costs incurred, but you must provide evidence to HMRC. HMRC accepts backdated claims for up to four tax years.

You may also be entitled to claim tax relief for using your personal vehicle, whether it is a car, van, motorcycle, or bike. Generally, tax relief is not available for regular commuting to and from your usual workplace. However, the rules are different for temporary workplaces, where such expenses are usually allowable, or if you use your vehicle for other business-related travel. Additionally, you may be able to claim tax relief on equipment purchased for work, such as a laptop, chair, or mobile phone.

Should your employer not cover these expenses or allowances, you can claim tax relief directly from HMRC.

Business mileage with your own vehicle

Understanding the nuances of tax relief for using your personal vehicle for work can lead to significant savings. By familiarising yourself with HMRC's approved mileage rates you can ensure you are adequately reimbursed and compliant with current regulations.

If you are an employee you may qualify for tax relief if you use your own vehicle, whether it's a car, van, motorcycle, or bike. As a general rule, tax relief is not available for ordinary commuting to and from your regular workplace. However, different rules apply to temporary workplaces, where the expense is typically allowed, as well as for business-related mileage when using your own vehicle.

Employers typically reimburse employees based on a set rate per mile, depending on the mode of transportation. HMRC publishes approved mileage rates for vehicles used on business trips. When employers use these approved rates, the payments made are not considered to be taxable benefits.

If your employer reimburses you at a rate lower than the approved mileage rates, you can claim tax relief for the shortfall using mileage allowance relief. For cars, the approved mileage allowance payment is 45p per mile for the first 10,000 business miles, and 25p per mile for every additional business mile. The approved rates for other modes of transport are 20p per mile for bicycles and 24p per mile for motorcycles.

Additionally, you may receive an extra payment of 5p per passenger per business mile from your employer if you transport colleagues in your vehicle for work-related journeys.