Government Fails IR35 Test

 

It seems that two government departments have fallen foul of HMRC’s “Orwellian” contractor taxation rules concerning off-payroll worker status (aka IR35), leaving them with bills topping £100m.

The Department of Work and Pensions (DWP) first made the admission in its 2020-21 annual report that it had used HMRC’s Check Employment Status Tool (CEST) to assess engaged off-payroll workers’ employment status or “correct tax treatment”.

It owes HMRC £88m for “historic errors” in assessing tax liability for its off-payroll workers over the period 2017-21.

Squirrelled away under “Fruitless payments” in the report, the note said: 

“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 tax/NI [National Insurance] 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.”

Days later, the Home Office quietly published its own annual report with a similar admission it had botched assessments of its contractors’ employment and tax status between 2017 and 2021.

It admitted being “careless” in its application of the off-payroll rules, and was penalised £4m along with a £29.5m bill for incorrect assessments plus interest on the accrued amounts.

Clearly the government doesn't understand how IR35 rules work. If the government does not understand its own rules, how the hell are the rest of us meant to understand them?

Tax does have to be taxing.

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