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‘Careless’ Home Office hit with £33.5m IR35 bill

The Home Office is the latest government department to pay an enormous IR35 bill for non-compliance

HMRC has handed the Home Office a £33.5m IR35 bill after a review of its off-payroll compliance process was found to be “careless.”

The tax bill, which also includes a £4m penalty for incorrectly determining the IR35 status of contractors, was revealed in the department’s recently published 2020-2021 annual report and accounts.

According to the document, HMRC placed the Home Office under review in 2018 over its implementation of IR35 reform, which came into effect in the public sector in 2017.

The tax watchdog determined that a number of contractors had been incorrectly working outside IR35. 

Home Office incurred £4m penalty

As a result, the Home Office incurred a bill of £29.5 million to cover the cost of the tax HMRC claims to have lost, which was made up of missing Income Tax, National Insurance Contributions and interest.

A further £4 million penalty was then imposed on the department, after HMRC ruled that its implementation of the new off-payroll rules had been “careless.”

However, the accounts show that this fine was suspended for three months in order to give the department a chance to improve its procedures on IR35 compliance.

It’s not the first time a government department has been caught out by the taxman over IR35. Published accounts by the Department of Work and Pension also revealed it had received an £88 million tax bill, reported on by Contractor Weekly just last week.

Rebecca Seeley Harris, an employment lawyer and IR35 expert, said these tax bills highlight just “how difficult it is to make status assessments” and urged the government to “look again at the statutory test.”

IR35 rules are ‘incredibly complex’

She added: “The employment status case law, which underpins IR35 and the off-payroll working rules, are incredibly complex to understand for lawyers, let alone the layman. 

“The problem I find is that because there is no certainty within the case law, even as an expert, it is difficult to guide the client in the right direction. There are, however, certain key factors and working practices that can be implemented to reduce the risk.

“More often than not I find that there is a problem with the drafting of the contract. This must be drafted or overseen by an employment status expert. There are nuances within the clauses that will make the difference to the end result.  

“Also, the working practices have to be congruent with the contract. The client must stand back and keep the contractors at arm’s length. They are not a quasi-employee, so don’t treat them like one. If you want to control your contractors then put them on the payroll.”

By Contractor Weekly

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19 thoughts on “‘Careless’ Home Office hit with £33.5m IR35 bill”

  1. Phil J

    Another pyric victory for HMRC and of course a great bonus for us Tax Payers.

  2. Gary Andrews

    There’s a number of deeply troubling intentional barriers to business demonstrated here:
    .IR35 rules for engaging contractors are so “incredibly complex” as to be unknowable
    .Clients can reduce risk by using expensive tax consultants with extraordinary effort
    .Even expert tax lawyers cannot offer any certainty
    .The client is now liable for any penalty
    .Penalties will be huge if not bankrupting in most cases

    What client will want to go anywhere near UK contractors now?

  3. Paul

    The flexible workforce is dead outside of zero hours Mac-jobs.
    Most contractor industries are exhibiting a slow collapse if they can’t offshore or relocate but some proving less glacial. Haulage being the obvious example.

    • Martin

      Does anyone get the feeling we’ve swapped economies with 1980s Poland?
      There’s always an outside queue round the block for my doctors surgery and the supermarket is blocking barcodes for their few remaining cheap items, a sort of rationing. Poles used to talk about joining queues without exactly knowing what was being sold. I fear we’re not far off.

    • Gordon Bennett

      It would be ironic if hit by hyperinflation the UK population unofficially resorts to using a stable currency like say, the Euro.

      • The Major

        We’ll have none of your base ten simplicity here. This is a local country for local people. Pounds, shillings and pence only.

  4. Bloody Marvellous

    What bothers me about this article is the implicit acceptance that a contractor as a temporary “quasi-employee” is wrong.

    I think we’ve been battered by IR35 to the extent that we’ve stopped arguing our side except from a perspective which few contractors have ever held. At least as far as IT is concerned.

    The vast majority of IT contractors ARE and always have been temporary employees. The argument that there is nothing wrong with that has been abandoned.

    I’m no old enough to remember the nineties, when the Inland Revenue insisted on IT contractors using limited companies – previously they’d been sole traders like the majority of the self-employed workforce.

    • Chris

      100% right. When did being self-employed become such a crime and why only for certain jobs?
      I’ve returned as a salaried employee to an old workplace. Same job but less money. With salary sacrifice I’m able to cut my annual tax bill down to a fifth of what I was paying in as a contractor. IR35 did this.

  5. Sibur

    What I take from this more than anything that “contractor” is a dirty word as far as HMRC is concerned, when in fact they provide an essential service to UK industries. Successive governments have been short sighted and are more concerned about clawing back pitiful amounts of tax in terms of GDP, when it should be thinking in terms of the benefits contractors can provide to the UK economy.

  6. Home Goal

    Well the government can chalk up another win for the government

    Even though it is against the government

    But thank god the government caught these tax dodging criminals

    How much tax payer money was spent in employing these people to police themselves and apply fines to themselves

    I bet it is more than they put up for children’s holiday meals

    • Johnny

      Don’t worry they probably contracted their friends at Atos, Capita, G4S or Serco to do any legwork. For a vast markup and kickback to the party of course.

    • HMRCunts

      The Gestapo finance wing are a particularly pernicious department who act above the law with impunity and are largely unregulated. Faceless cowards who hide behind those annoying little brown envelopes that drop through the letterbox. They do what they please, change laws retrospectively to suit their agenda and all at her majesty’s pleasure!

      This latest farce is all about targeting the large corps into frightening them away from hiring freelancers/contrators so ….. job done. They don’t necessarily care about those individuals retiring or leaving the UK.

      The net result is that it will bring in less revenue through tax as less people will contribute but they have never been very bright in what they do !

      ir35 is just another made up set of rules, in a long list of made up rules over the years, dreamed up by the HMRC unicorns trying to justify their existence to shaft many millions of honest contractors.

      #Contractorslivesmatter

  7. Brian K

    Oh how sensible. Spend huge sums of tax payers money to get more taxpayers money from another tax payers funded organisation.

    If the inland revenue spent as much effort on suggesting to government how they can fix IR35 legislation, Tax payers would be far better off.

  8. M

    Two things on this for me:

    1. Are they pursuing Gov departments to establish stronger precedence on their wobbly IR35 legislaiton

    2. Inter Dept payments are wooden dollars – hardly an overall win for Government ?

  9. XY

    Is anyone else smelling a rat here?

    All these govt departments being hit with bills. None of them appeals- not even one contract.

    Up to now there wasn’t even a suggestion that they’d entered anything wrong in the CEST tool – which HMRC said they would stand by unless incorrect info was entered blah blah.

    So unless these depts entered something that was incorrect about each and every contract adding up to many millions… this stinks to high heaven.

    The bill for this just goes back to the Treasury, who fund the depts in question in the first place. Money moving in circles in the public sector, trying to put the fear of God up the private sector into not taking people on Outside IR35 – because now they will see it as too risky.

    This is NOT how I except a UK govt department to behave. And who runs the Treasury – a chap whose father in law is co-founder of the 2nd largest Indian consultancy. And who gains from IR35? Consultancies.

    • Gabriel

      Yes that’s almost certainly part of the hustle. That said, firms are not going to risk everything by engaging contractors in this environment.
      We knew they were corrupt when we voted them in.

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