Following hot on the heels of the DWP, yet another large public sector body has been found to have IR35 failings – this time it’s the Home Office.
Their implementation of the off-payroll legislation was reviewed by HMRC who found a number of instances where the IR35 status of contractors was incorrectly assessed. The Home Office incurred a bill of £29.5m which covers the income tax, NICs arising from the IR35 status errors, and interest charged by HMRC.
A further £4m penalty was incurred as HMRC found the Home Office was ‘careless’ in carrying out it’s off-payroll responsibilities. This charge was conditionally suspended for 3 months to allow time for the Home Office to improve their compliance procedures.
In our opinion, it’s likely that the Home Office wasn’t ‘careless’ at all, rather it might have been simply a case of non-experts trying their best. We always thought that HMRC delegating their enforcement role to businesses was a flawed approach, which does seem to be borne out here. If HMRC cannot educate their own public sector colleagues to be sufficiently equipped in determining IR35 status, what hope is there for the many thousands of private sector businesses grappling with their new responsibilities as of April this year?