Two government departments have recently been hit with significant tax bills over incorrect IR35 determinations, causing the Association of Independent Professionals and the Self-Employed (IPSE) to call for greater clarity around the rules.
The two departments are the Department for Environment, Food and Rural Affairs (Defra) and the Ministry of Justice (MoJ), with their combined bills totalling slightly over £120 million. HMRC has ruled that the MoJ was liable for breaking regulations and owed £72.1 million, while Defra was found to owe £48 million over incorrect IR35 determinations.
The IPSE asserted that the fact that two government departments had made inaccurate IR35 status determinations, despite training, support and guidance from HMRC, illustrated how “complicated and confusing” the rules are. IR35 rules came into force for public sector organisations in 2017, meaning that such organisations became responsible for determining the tax status of their contractors.
Despite coming in over four years ago, the rules continue to attract criticism for allegedly being overly complex. The IPSE has also pointed out that the rules, which came into effect in the private sector in April 2021, are just as complicated for private companies, which don’t benefit from the same connection to HMRC as government departments.
IPSE Director of Policy Andy Chamberlain commented: “The fact that two major government departments have run into trouble with their IR35 compliance show just how complicated and confusing the regulations are. Even with guidance, support and training from HMRC, the MoJ and Defra have not made accurate status determinations. For private sector organisations that aren’t as connected to HMRC, they will almost certainly find it equally challenging.”
“The revelations that these huge tax bills are owed prompt a further question: has tax already been paid on these engagements? If it has, then HMRC is in danger of collecting too much tax, which is against its own principles. IPSE is calling for an offset mechanism to be introduced to ensure that double taxation can not incur.”
