[UK] Government owes itself £263m back taxes for payroll rule failures

MPs have stated that the UK Government owes itself hundreds of millions of pounds in back taxes due to a failure of Whitehall departments to comply with rules on off-payroll working, City A.M. reports.

The Commons Public Accounts Committee said it was “not acceptable” that the central government was paying out to cover tax owed for individuals who had been wrongly assessed as self-employed.

The committee found that Government departments and agencies reportedly owed – or were expected to owe – HMRC £263m for 2020-21 due to the “incorrect administration” of the rules.

IR35 rule

The IR35 rule was introduced in 2000 to prevent tax avoidance by “disguised employees” who carry out the same job as an employee but avoid income tax and national insurance by providing services through an intermediary such as a personal services company.

Due to low levels of compliance, HMRC tightened the rules and these changes came into effect in the public sector in April 2017.

The committee said the “rushed” manner in which the new regulations were introduced meant some government departments struggled to implement them properly.

“Central government is spending hundreds of millions of pounds to cover tax owed for individuals wrongly assessed as self-employed.” The Commons Public Accounts Committee said.

“This is not acceptable considering government departments should be in a good place to understand the rules and communicate with HMRC.

“However, mistakes were likely as the reforms were rushed in by HMRC and public bodies were given little time to prepare.”

HMRC response

An HMRC spokesman said, “These reforms have succeeded in making the tax system fairer, with more people who work like employees paying tax like employees, levelling the playing field for everybody else and bringing in the tax that is due under the law.

“We delivered an extensive programme of education and support before the reforms took effect and we have continued to adapt our approach to improve compliance with the rules and support organisations to get things right.”

Source: City A.M.

(Quotes via original reporting)

MPs have stated that the UK Government owes itself hundreds of millions of pounds in back taxes due to a failure of Whitehall departments to comply with rules on off-payroll working, City A.M. reports.

The Commons Public Accounts Committee said it was “not acceptable” that the central government was paying out to cover tax owed for individuals who had been wrongly assessed as self-employed.

The committee found that Government departments and agencies reportedly owed – or were expected to owe – HMRC £263m for 2020-21 due to the “incorrect administration” of the rules.

IR35 rule

The IR35 rule was introduced in 2000 to prevent tax avoidance by “disguised employees” who carry out the same job as an employee but avoid income tax and national insurance by providing services through an intermediary such as a personal services company.

Due to low levels of compliance, HMRC tightened the rules and these changes came into effect in the public sector in April 2017.

The committee said the “rushed” manner in which the new regulations were introduced meant some government departments struggled to implement them properly.

“Central government is spending hundreds of millions of pounds to cover tax owed for individuals wrongly assessed as self-employed.” The Commons Public Accounts Committee said.

“This is not acceptable considering government departments should be in a good place to understand the rules and communicate with HMRC.

“However, mistakes were likely as the reforms were rushed in by HMRC and public bodies were given little time to prepare.”

HMRC response

An HMRC spokesman said, “These reforms have succeeded in making the tax system fairer, with more people who work like employees paying tax like employees, levelling the playing field for everybody else and bringing in the tax that is due under the law.

“We delivered an extensive programme of education and support before the reforms took effect and we have continued to adapt our approach to improve compliance with the rules and support organisations to get things right.”

Source: City A.M.

(Quotes via original reporting)