DWP pay 'enormous' £87.9m IR35 tax bill

The Government body, the Department for Work and Pensions (DWP) has been issued with a tax bill of £87.9m due to incorrectly assessing the IR35 status of contractors engaged since 2017.

In 2017, IR35 reform was introduced in the public sector, resulting in all public sector bodies becoming responsible for determining the IR35 status of contract workers. On April 6, 2021, similar changes were introduced in the private sector.

The DWP's compliance was reviewed by HMRC and subsequently an agreement was reached on historic errors of a liability for missing tax and national insurance plus interest. The latest set of accounts from DWP show a series of payments are required for incorrectly assessing the tax status of contractors for the previous four years.

Reportedly, HMRC's own online status assessment tool, CEST, which has been much criticised, was used in these cases.

Seb Maley from IR35 specialist, Qdos, said: "£87.9m is an enormous tax liability and just goes to show the cost of non-compliance. 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.

"But businesses aren't required to use the tool and, as we can see here, there's zero guarantee that HMRC will stand by answers it delivers.

"While DWP's tax bill is eye-watering, the fact that it's a Government body means the financial blow will be less felt in this scenario. Even so, this isn't a reason for other firms to stop engaging contractors.

"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."