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IR35: DWP’s £87.9m Bill Despite Using HMRC’s Tool

The Department of Work & Pensions (DWP) has been hit with an £87.9m tax bill in relation to IR35/off-payroll legislation due to errors made in using HMRC’s Check Employment Status for Tax (CEST) tool.

HMRC reviewed DWP’s implementation of new off-payroll legislation which came into effect for the public sector in 2017, and concluded the following tax/NI plus interest liabilities for DWP:

  • £21.1m for the financial year 2017-18
  • £36.7m for 2018-19
  • £29.7m for 2019-20
  • £0.4m for 2020-21

The total amount of £87.9m will be recorded as a loss in DWP’s 2021-22 annual accounts.  In addition, the accounts also note that BPDTS, a company providing digital technology services to DWP, also incurred IR35-related liabilities of its own, totalling £6.9m.  BPDTS was absorbed into DWP in July 2021.

HMRC have always said that they will stand by the results generated by their CEST tool, however this is not first time they have reneged on this; NHS Digital received a tax bill of £4.3m in 2019 despite using CEST and implementing the resulting tax statuses.

HMRC justify the fact that they have not upheld the results of their own tool by saying it was always subject to the tool being used correctly, and the accuracy of information input.  Given the very large tax bills it seems that HMRC’s tool is difficult to use with any accuracy and therefore it’s usefulness is questionable.

Furthermore many industry experts were concerned about the validity of CEST determinations from the outset due to the omission of mutuality of obligations from the employment status test, rendering it fundamentally flawed from the get-go.

The moral of the story is simple, do not solely rely on HMRC’s CEST tool unless you can be certain that the data has been inputted by someone suitably qualified.  Given the financial risks, it is no wonder that so many end-hirers are making blanket inside determinations or deciding to simply stop engaging contractors entirely.


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