The Home Office is the latest government department to fall foul of the government’s own IR35 laws.
Following on from the Department for Work and Pensions’ IR35 transgressions coming to light, leading to a £87.9m payment having to be made to HMRC, the Home Office has now found the employment status of its contractors have been wrongly assessed.
Since 6 April 2017, public sector organisations have been responsible for establishing how contractors should be taxed and whether they are essentially employees who should be inside IR35 or off-payroll workers.
What we are now seeing is a consequence of the false promises that HMRC made to parliament in the lead up to the roll out of the off-payroll legislation” – Dave Chaplin, CEO, IR35 Shield
An HMRC review has found that the Home Office should pay £29.5m to cover the income tax, national insurance contributions and interest that it estimates was lost through these errors in assessing contractors’ status.
According to the Home Office’s 2020-21 accounts, the department had 216 off-payroll workers on its books as of 31 March 2021 who were earning at least £245 a day, and 90 of them had their IR35 status changed following a review at some point since 1 April 2020.
The department has put in place training for managers and improvements in the way it monitors compliance with the IR35 rules. It had also been made subject to a £4m penalty after HMRC determined that its application of the off-payroll rules had been “careless”, but this was subsequently suspended.
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A spokesperson for the Home Office told IT website Computer Weekly: “HMRC has recognised that the Home Office made every effort to resolve this issue quickly and effectively and has suspended the [£4m] penalty imposed while the cooperation is ongoing,” the spokesperson added.
The website said it was not clear whether the HMRC’s much criticised online Check Employment Status for Tax (CEST) tool had been used to assess the IR35 status of its contractors when the errors occurred.
Dave Chaplin, CEO of compliance solution IR35 Shield, said the news was more evidence that the IR35 reforms were “destructive” and called for parliament to revisit the issues.
He said: “The Home Office says it needs to ‘monitor compliance’ which reinforces what I have been saying for a long time – a single assessment is not enough, and firms need to be regularly checking status and gathering evidence to support their original status determinations.
“Certainty is what business need to succeed. If commercial contracts cannot be entered into with certainty, it destroys the fundamental fabric of a market economy. And, what we are now seeing is a consequence of the false promises that HMRC made to parliament in the lead up to the roll out of the off-payroll legislation, and the uncertainty created by HMRC’s failed CEST tool.
“This is extremely serious and since April 2021 the situation has got worse and parliament should not tolerate it. HMRC appears to have no comprehension of how destructive their reforms have been to both people’s lives and the economy. Questions need to be asked.”
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