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HMRC hands DWP £87.9m tax bill over IR35 failings

An IR35 specialist told Reward Strategy that the government body should be “leading by example”.

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The Department for Work and Pensions (DWP) has been handed an £87.9m tax bill over claims of IR35 failings.

 

This comes after the DWP had incorrectly determined the IR35 status of contractors.


Back in 2017, IR35 reforms were launched for public sector workers as all public bodies became responsible for determining the tax status of contractors they hired. In April 2021, similar changes were then made in the private sector, reported the Express.

 

Since the change was introduced, medium to large sized businesses have been required to access the tax status of the contractors they hire.

 

Following the change, concerns increased regards how they would hamper the usage of contractors and freelancers as financial and administrative costs increased for firms.


As a result, the government was urged to pause or reverse the action by experts, as workers may have struggled due to the change, particularly amid the coronavirus pandemic.


Plus, the government’s assessment tools were criticised for not being up to scratch, something that one expert has alluded to recently.

 

Seb Maley, the CEO of IR35 specialist Qdos, explained: “Given HMRC’s very own IR35 tool - CEST - was used to assess the IR35 status of contractors, here we have proof that using it can easily lead to mistakes and staggering financial consequences.”

 

Leading by example

Speaking exclusively to Reward Strategy, Maley shared that as the DWP is a government body, it should be “leading by example”.

 

“You would hope that it would be showing other businesses how IR35 reform can be managed compliantly,” he added.

 

However, he pointed out that the key issue with this tax bill is that the DWP relied on HMRC’s “deeply flawed” IR35 tool, CEST. “This tool has shown time and time again that it cannot be relied on to accurately assess IR35 status,” Maley said.


Compliance is critical

Reflecting on the DWP case, Maley shared that it “is the biggest tax liability in the history of the IR35 legislation”.


He noted that it serves as a reminder that IR35 compliance is critical, as if businesses get it wrong, it can prove incredibly costly.

 

“This is another high profile IR35 story that involves millions of pounds. And as far as I’m concerned, HMRC have sent a clear signal of intent. Compliance in this area sits high on the tax office’s agenda and following reform to IR35, they are now in a position to approach businesses along with contractors,” he concluded.

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