IR35 review slams government for staggering non-compliance

IR35 review slams government for staggering non-compliance

Public Accounts Committee’s IR35 review blasts the government for non-compliance, which has amounted to £263m

The Public Accounts Committee’s (PAC) recent review into the implementation of IR35 reform highlighted “widespread non-compliance” across central government departments, exposing many of the difficulties faced by contractors who are struggling to overturn incorrect status determinations.

In failing to comply, numerous government departments have been handed a tax bill that collectively amounts to £263m. 

The review states that “this is not acceptable considering government departments should be in a good place to understand the rules and communicate with HMRC.”

Alongside staggering levels of non-compliance, the review also calls into question the “rushed” implementation of IR35 reform in the public sector, citing a number of concerns around HMRC’s Check Employment Status for Tax (CEST) tool.

The PAC said: “Some questions within CEST were difficult to interpret correctly, and the guidance was long, too general in scope and not integrated into CEST itself.”

These concerns are shared by many experts across the industry, including Seb Maley, CEO of IR35 insurance provider, Qdos Contractor.

“This IR35 review is damning and highlights many of the failures made by the government when implementing the reforms.

“Along with highlighting the staggering levels of non-compliance in the public sector following reform, it exposes the flaws of CEST, which frankly still isn’t fit for purpose despite being launched five years ago.”

The impact of IR35 on the labour market 

HMRC is also accused by the PAC of “not doing enough to understand the impact of the reforms on workers and labour markets.”

The same fears were echoed by Andy Chamberlain, Director of Policy at IPSE, who also called for an urgent rethink of the “flawed reforms.”

“We at IPSE hope that the report jolts the government into action. It is clear the rules urgently need a rethink. The damage of the reforms to the public sector is just the tip of the iceberg – the much larger private sector is also really struggling with this.

“The rules are far too confusing, are causing major conflicts within the labour market, which is preventing projects from being done and, in turn, damaging the UK economy.”

Recent research by IPSE also suggested that reform in the private sector has negatively impacted four in 10 businesses financially.

Fundamental problems remain despite IR35 reform

The review was chaired by Dame Meg Hillier, who believes that “the fundamental problems underlying UK taxation of work remain”, and the Chair has suggested that HMRC should shoulder the burden of proof.

“It is now up to HMRC to demonstrate that the system can work fairly in the real world; to prove that it is correctly claiming revenues under the system and that the additional revenues raised are worth the costs and unintended consequences in the labour market.”


  • Geoff says:

    These fines are an indication of the volume of contracts that were not deemed to be within IR35 but should have been. There will also be a significant number where the reverse is true.
    Clearly these rules are far too complex to implement properly and fairly with any confidence.

  • colin says:

    My end client is now asking me to demonstrate that I am still outside IR35 (after 14 months) otherwise they will move me to PAYE (at £1ph less as well). I had IR35 shield assessment at their request back in March but they have choosen to ignore this and are applying a blanket approach across all contractors. Either go PAYE at end of June or leave, unless I can convince them. Any advice and why shoudl I do it.

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