The Home Office has received a double-whammy of tax charges and penalties totaling £33.5m after reviewing the department’s IR35 compliance procedures by HM Revenue & Customs (HMRC) determined that it had been “careless” in its implementation of the tax avoidance reforms. The Home Office’s 2020-2021 Annual report and accounts show the department had its implementation of the IR35 reforms placed under review by HMRC in 2018, bringing to light several instances whereby the employment status of its contractors was incorrectly assessed.
Public sector organizations, such as the Home Office, have been responsible for determining whether the contractors they engage with should be taxed in the same way as permanent, salaried staff (inside IR35) or as off-payroll workers (outside IR35) since 6 April 2017. The HMRC review determined that the Home Office had incorrectly assessed numerous contractors working outside IR35 since April 2017, resulting in the department incurring a bill for £29.5m to cover the income tax, national insurance contributions, and interest that HMRC claims were lost through these errors.
The Home Office’s 2020-21 accounts state that the department had a total of 216 off-payroll workers on its books as of 31 March 2021 who were earning at least £245 a day, and 90 of them had their IR35 status changed following a consistency review at some point since 1 April 2020. The department, concerned with crime prevention and controlling immigration to the UK, also incurred a further £4m penalty after HMRC determined that its application of the off-payroll rules had been “careless. The £4m charges were conditionally suspended for three months, the accounts confirm, to give the Home Office time to improve its IR35 compliance procedures.