[UK] £12m IR35 bill for HM Courts and Tribunal Service

HM Courts & Tribunal Service paid £12.5 million to the HMRC following incorrect IR35 status decisions, according to information from its own documents, SIA reports.

The Courts and Tribunal Service is only the latest government body to pay millions of pounds to HMRC as a result of IR35 non-compliance, the Department of Work and Pensions had an £87.9 million IR35 liability and the Home Office paid £33.5 million.

In the total losses section of the HM Courts & Tribunal Service annual report and accounts, the document states, “£12.5 million payable to HMRC in relation to IR35 liabilities arising from incorrect assessments of the employment status of workers. In 2019, HMRC challenged the Ministry of Justice (MoJ) to revisit employment status determinations for off-payroll workers engaged between 6 April 2017 and 5 April 2020, where we had previously concluded workers were operating outside of the off-payroll working rules. This liability has crystallised and quantifies the contingent liability disclosed in the 2019-20 Annual Report and Accounts. As the department could have avoided these tax and NI payments if a different determination had originally been made, the liabilities are classified as fruitless.”

Dave Chaplin - CEO of IR35 Shield - said, “HMRC’s CEST tool is failing fast and now we are hearing of yet one more government department, HM Courts and Tribunal Service, hit with a high tax bill to the tune of £12 million because it has relied on CEST to assess its contracting workforce.  One of CEST’s major flaws has been its over-reliance on substitution, which any defence expert knows is folly.  Over the last few years, many industry experts have pointed out CEST’s failings to HMRC but those messages were ignored and now we are witnessing the fallout and financial damage.”

“My advice to anyone who has used CEST is to revisit your determinations and if they rely on a valid right to substitute then seek advice on the correct interpretation of the law. Also, recheck the status with the assumption that the substitution clause is not valid, to make sure you have not also been badly exposed due to the flaw.”

Seb Maley - Qdos CEO - said, “Here we have proof yet again that the taxman’s very own IR35 tool threatens compliance rather than ensuring it. Businesses should avoid it altogether or at the very least get a second opinion on every answer it provides.”

“As a government body, the £12.5 million in tax liability paid is effectively wooden dollars, money passing from one department to another. But it would be a different story for a private sector firm, and the sheer size of a tax bill like this could devastate a business. The staggering tax payments made by public sector bodies recently highlight how important it is that businesses ensure IR35 compliance, which is clearly a priority for HMRC right now.”

HM Courts & Tribunal Service paid £12.5 million to the HMRC following incorrect IR35 status decisions, according to information from its own documents, SIA reports.

The Courts and Tribunal Service is only the latest government body to pay millions of pounds to HMRC as a result of IR35 non-compliance, the Department of Work and Pensions had an £87.9 million IR35 liability and the Home Office paid £33.5 million.

In the total losses section of the HM Courts & Tribunal Service annual report and accounts, the document states, “£12.5 million payable to HMRC in relation to IR35 liabilities arising from incorrect assessments of the employment status of workers. In 2019, HMRC challenged the Ministry of Justice (MoJ) to revisit employment status determinations for off-payroll workers engaged between 6 April 2017 and 5 April 2020, where we had previously concluded workers were operating outside of the off-payroll working rules. This liability has crystallised and quantifies the contingent liability disclosed in the 2019-20 Annual Report and Accounts. As the department could have avoided these tax and NI payments if a different determination had originally been made, the liabilities are classified as fruitless.”

Dave Chaplin - CEO of IR35 Shield - said, “HMRC’s CEST tool is failing fast and now we are hearing of yet one more government department, HM Courts and Tribunal Service, hit with a high tax bill to the tune of £12 million because it has relied on CEST to assess its contracting workforce.  One of CEST’s major flaws has been its over-reliance on substitution, which any defence expert knows is folly.  Over the last few years, many industry experts have pointed out CEST’s failings to HMRC but those messages were ignored and now we are witnessing the fallout and financial damage.”

“My advice to anyone who has used CEST is to revisit your determinations and if they rely on a valid right to substitute then seek advice on the correct interpretation of the law. Also, recheck the status with the assumption that the substitution clause is not valid, to make sure you have not also been badly exposed due to the flaw.”

Seb Maley - Qdos CEO - said, “Here we have proof yet again that the taxman’s very own IR35 tool threatens compliance rather than ensuring it. Businesses should avoid it altogether or at the very least get a second opinion on every answer it provides.”

“As a government body, the £12.5 million in tax liability paid is effectively wooden dollars, money passing from one department to another. But it would be a different story for a private sector firm, and the sheer size of a tax bill like this could devastate a business. The staggering tax payments made by public sector bodies recently highlight how important it is that businesses ensure IR35 compliance, which is clearly a priority for HMRC right now.”