HM Courts and Tribunal Service hit with £12.5m IR35 bill

HM Courts and Tribunal Service has become the third Government department to be hit with a multi-million bill from HMRC due to making incorrect IR35 status decisions.

The £12.5 million which the Courts and Tribunal Service have paid to the tax man follows an £87.9 million payment from Department for Work and Pensions and £33.5 million paid by the Home Office - all due to incorrect IR35 status assessments of their contractors.

Although in some cases, including the latest, the Government Departments had used HMRC's much-criticised online status assessment tool, CEST.

The liabilities come after the Government shifted responsibility for the assessments and payments to the client in the public sector several years ago. This move was replicated in the private sector earlier this year.

'Fundamentally flawed'

Seb Maley from IR35 tax experts Qdos, said: "The question 'who next?' springs to mind. This is the third government body to reveal that it has been stung by a multi-million pound IR35 tax liability. But given that HMRC's fundamentally flawed IR35 tool, CEST, was used to decide the IR35 status of contract workers, I'm not in the least bit surprised that mistakes have been made.

"Here we have proof yet again that the taxman's very own IR35 tool threatens compliance rather than ensuring it. Businesses should avoid it altogether or at the very least get a second opinion on every answer it provides.

"As a Government body, the £12.5m in tax liability paid is effectively wooden dollars - money passing from one department to another. But it would be a different story for a private sector firm, and the sheer size of a tax bill like this could devastate a business.

"The staggering tax payments made by public sector bodies recently highlight how important it is that businesses ensure IR35 compliance, which is clearly a priority for HMRC right now."