The Department for Work and Pensions, which administers the State Pension and a range of working age, disability and ill health benefits to around 20 million claimants and customers has reported £87.9m in national insurance liabilities linked to IR35 contractor assessment.
During 2020-21 the Department settled IR35 tax liabilities with HM Revenue & Customs (HMRC) relating to its incorrect assessment of the employment status of its contractors.
“This is reported as a fruitless payment of £87.9 million in the Losses and Special Payment section of the Accountability Report relating to tax liabilities arising from the Department’s errors in assessing the employment status of contractors under IR35 for the years 2017-18 to 2020-2133,” the DWP stated in its annual 2021/21 report.
This payment relates to arrears of tax due and the interest on those arrears; the Department has not paid any penalties for non-compliance. A further liability of £6.9 million has been recognised in the Departmental Group financial statements for arrears of tax and interest on those arrears due from arm’s-length bodies.
DWP used HMRC’s CEST (Check Employment Status Tool) to determine the status of its contractors. In March 2020 DWP received a Letter of Offer from HMRC that formally concluded their review of IR35 implementation in DWP.
The result was agreement on historic errors and acceptance by DWP of liability for tax/NI plus interest for the financial years 2017-18 (£21.1m), 2018-19 (£36.7m) and 2019-20 (£29.7m).
A liability for 2020-21 (£0.4m) was also subsequently agreed upon. The total amounted to £87.9m.
During the 2020-21 financial year, DWP engaged 1,025 contractors who were paid a day rate of at least £245 a day. A total of 247 contractors were assessed as “caught by IR35” including those working in the core department, arm’s length bodies and other departmental groups. Thirty-five engagements saw a change to IR35 status following a consistency review.
An ALB, BPDTS Limited, reached a full and final settlement in respect of IR35 liabilities with HMRC for £6.9m relating to the financial years 2017-18, 2018-19 and 2019-20. This amount will be recorded as a loss in the 2021-22 Annual Report and Accounts.
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