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Department for Work and Pensions (DWP) receives IR35 tax bill of £87.9 million from HMRC!

In a sign of the threat that IR35 legislation faces to employers, even the Government's own departments cannot hide from HMRC.

Andrew Collier
Andrew Collier HR Adviser
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The Department for Work and Pensions (DWP) is reported this week to face a tax bill of £87.9 million, to cover missed tax and national insurance contributions between 2017 and 2021, after incorrectly determining the tax status of its contractors under the IR35 legislation. This is despite DWP's reliance on HMRC's Check Employment Status for Tax (CEST) tool!
 
For the public sector, responsibility for making the relevant status determinations was transferred from contractors to end hirers in 2017, to combat non-compliance. With the same rules now in force for the private sector from April 2021, after a one-year delay due to the COVID-19 pandemic, this serves as a key reminder that businesses should perhaps exercise caution when using the CEST tool alone to inform decisions on the status of contractors.    Whilst understandably tempting to rely on the CEST tool because it is both free and would appear to come with HMRC endorsement,  it is always advised by us that businesses who use contractors engage specialist legal advice.   

Perhaps quite remarkably, it has also been reported that the Home Office faces a £33.5 million tax bill over their "careless" application of the IR35 rules.  It may be that Government departments are not likely to defend their position in the courts  (on the basis that ultimately the monies all sit with the Treasury) and it will be private sector employers who,  in time,  will establish the test cases that provide more clarity on the post April 2021 position.  
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