Embarrasingly, the Department for Work and Pensions (DWP) paid £87.9 million to HM Revenue & Customs after a review of its IR35 compliance procedures revealed that it had incorrectly assessed the employment status of its contractors engaged since 2017, according to Computer Weekly (paywall).
In 2017, IR35 reform was introduced in the public sector, resulting in all public sector bodies becoming responsible for determining the IR35 status of contract workers. On 6th April 2021, similar changes were introduced in the private sector.
Seb Maley, CEO of IR35 specialist Qdos said, “£87.9 million is an enormous tax liability and just goes to show the cost of non-compliance. Given HMRC’s very own IR35 tool - CEST - was used to assess the IR35 status of contractors, here we have proof that using it can easily lead to mistakes and staggering financial consequences. But businesses aren’t required to use the tool and, as we can see here, there’s zero guarantee that HMRC will stand by answers it delivers.”
“While DWP’s tax bill is eye-watering, the fact that it’s a government body means the financial blow will be less felt in this scenario,” Maley continued. “Even so, this isn’t a reason for other firms to stop engaging contractors. Having worked with dozens of public sector bodies since 2017, we have shown that with a robust, fair process and detailed audit trail, organisations can keep challenges like this at bay.”
“This is another high profile IR35 story that involves millions of pounds. And as far as I’m concerned, HMRC have sent a clear signal of intent. Compliance in this area sits high on the tax office’s agenda and following reform to IR35, they are now in a position to approach businesses along with contractors,” Maley said.