According to its annual report for 2020-21, HM Courts & Tribunal Service paid £12.5m to HM Revenue & Customs in relation to IR35 liabilities arising from incorrect assessments of the employment status of its workers.
In 2017, IR35 was introduced in the public sector, resulting in all public sector bodies becoming responsible for determining the IR35 status of contract workers. The rule was widened out to the private sector in April.
In its accounts, HM Courts and Tribunal Service stated: “In 2019, HMRC challenged the MoJ to revisit employment status determinations for off-payroll workers engaged between 6 April 2017 and 5 April 2020, where we had previously concluded workers were operating outside of the off-payroll working rules.”
It is not the only government department that has had to pay out to HMRC, however.
The Department for Work and Pensions paid £87.9m to HMRC after a review of its IR35 implementation, according to DWP’s accounts.
The accounts stated: “In March 2020 DWP received a Letter of Offer from HMRC that formally concluded their review of IR35 implementation in DWP.
“The result was agreement on historic errors and acceptance by DWP of a liability for missing tax/NI plus interest for the financial years 2017-18 (£21.1m), 2018-19 (£36.7m) and 2019-20 (£29.7m). A liability for 2020-21 (£0.4m) was also subsequently agreed.”
A DWP spokesperson said: “Last year HMRC concluded its review of off-payroll working implementation in DWP. DWP is committed to ensuring that the correct tax is paid and has taken steps, including working more closely with HMRC, to improve our processes.”
In addition, the Home Office received a bill of £29.5m after HMRC launched an enquiry into the Home Office’s compliance with IR35 rules and found there had been instances where contractors were incorrectly assessed as out of scope.
In addition, HMRC found the Home Office had been ‘careless’ in its application of the offpayroll working rules and imposed a penalty of £4m.
This was suspended for three months subject to certain conditions.
Seb Maley, chief executive officer of Qdos, said: “The question ‘who next?’ springs to mind. This is the third government body to reveal that it has been stung by a multi-million pound IR35 tax liability. But given that HMRC’s fundamentally flawed IR35 tool, CEST, was used to decide the IR35 status of contract workers, I’m not in the least bit surprised that mistakes have been made."
He added: “As a government body, the £12.5m in tax liability paid is effectively wooden dollars - money passing from one department to another. But it would be a different story for a private sector firm, and the sheer size of a tax bill like this could devastate a business.
“The staggering tax payments made by public sector bodies recently highlight how important it is that businesses ensure IR35 compliance, which is clearly a priority for HMRC right now.”
A Home Office spokesperson said: “We are aware of a small administrative error, and have worked closely with HMRC to correct this.
"HMRC has recognised that the Home Office made every effort to resolve this issue quickly and effectively, and has suspended the penalty imposed while the cooperation is ongoing.”
The Ministry of Justice has been contacted for comment.
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know
