Tax bills over incorrect IR35 status determinations have recently been handed out to two government departments, prompting calls from the contractor industry for greater clarity regarding the rules.
The departments billed were the Ministry of Justice (MoJ), which was hit with a £72.1 million charge for breaking regulations governing IR35 status, and the Department for Environment and Rural Affairs (Defra), which has been found to owe HMRC £48 million for incorrect determinations.
As public sector organisations, MoJ and Defra have been responsible for determining the tax status of contractors they engage since 2017 and, by nature of being government departments, have a close connection to the tax authority HMRC.
The Association for Independent Professionals (IPSE) has noted that the fact the two departments with close ties to HMRC still made such costly errors in spite of this illustrates how complex and confusing the rules are.
Andy Chamberlain, Director of Policy at the IPSE, said: 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.”
IR35 rules came into force in the private sector last year and the IPSE has highlighted how they are just as confusing for private companies, with Chamberlain saying: “For private sector organisations that aren’t as connected to HMRC, they will almost certainly find it equally challenging.”
Chamberlain continued: “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.”
Author: Steven English