It has recently emerged that the Home Office has been hit with a £33.5 million IR35 tax bill after a review of its compliance process was found to be “careless”.
The tax bill includes a £4 million fine for incorrectly determining the IR35 status of contractors and had determined many contractors as incorrectly working outside of IR35. Which is similar in reason to why the DWP was also hit with an IR35 tax bill this year.
The tax bill was revealed in the recently published Home Office annual report and accounts for 2020-2021.
Not the first instance of incorrect status determinations
This is not the first time the government has been caught out by the taxman for incorrect IR35 determinations. Recently published accounts by the Department of Work and Pensions revealed it had been hit with a tax bill in excess of £87 million. While NHS Digital received a tax bill for £4.3 million in November 2019.
If the government can’t get it right then how can it expect everyone else to?
Everyone is fully aware of how complex IR35 can be, however at the very least shouldn’t the government have gotten its own house in order with regards to the reform before imposing it on everyone else.
Problems can occur at the outset with the way contracts are drafted. It is advisable to ensure draft contracts are overseen by an employment status expert to ensure they are compliant. A key point that typically crops up is the difference between what the contract says and what the actual working practices are.
The reform is complex for lawyers and employment experts to understand, so how does the layman who runs a business that employs contractors decipher the reform in a way that is compliant?
To find out more about the IR35 reform and how fee-payers can successfully navigate the IR35 maze, click here to read and download our ‘Fee-payers guide to IR35’.