Defra pays HMRC a ‘staggering’ IR35 bill of £86.5million for off-payroll mistakes

A further 23.3Million has been paid to HMRC by Defra after getting IR35 wrong, taking its total liability for off-payroll errors to a whopping £86.5Million.

The department for Environmental, Food and Rural affairs cautioned back in November 2021 that work to determine it’s “final liability” for fluffing IR35 status tests were still “continuing”.

At the time, Defra had paid £19Million to HMRC, thereby accepting Defra officials had erred in CEST-testing limited company contractors under the 2017 off-payroll rules.

Following this, Defra estimated its remaining IR35 liability to the taxman would more than likely result in £48Million – exclusive of interest charged by HMRC.

Defra has discreetly confessed it’s total HMRC settlement for off-payroll errors has escalated from a recalculated £63.2Million from October 2022 to a final settlement of £86.5Million.

A spokesperson from Defra confirmed the £86.5Million liability for IR35 non-compliance by the department.

HMRC has included an added £4m in interest, Defra’s grand total for bodging IR35, this should have made the spokesperson feel “humiliated” or at most “uncomfortable” a status expert says.

“But it’s even more mortifying for HMRC and HMT, assuming they realise what this staggering bill for Defra misapplying IR35 reforms means,” said the expert, Kate Cottrell.

Status advisory Bauer & Cottrell’s co-founder, she explained: “It means the guidance they provided to the public sector at the time was clearly not worth the paper it was printed on.

“It also means assistance given by HMRC to taxpayer-funded bodies like Defra was wholly inadequate. And it means CEST is a complete failure. It wasn’t and isn’t fit for purpose.”

Defra disclosed reassessments in November 2021, when an outside IR35 determination for 85% of PSCs shrank, upon HMRC intervening and Defra reassessing to 22% of PSCs.

That one-fifth or so then got spliced even further, with ‘outside IR35’ eventually allocated to just six per cent of the contractor workforce at Defra.

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Defra pays HMRC a ‘staggering’ IR35 bill of £86.5million for off-payroll mistakes (contractoruk.com)

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