According to an article in Contractor & Business Weekly (CBW), The Government Department for Environment, Food & Rural Affairs (Defra) has paid a total of £86.5 million in backdated taxes to HMRC, after a lengthy investigation into historic cases of IR35 non-compliance.

Defra was found to have been non-compliant between April 2017 (the year that IR35 reform was implemented in the public sector) and March 2022.

Embarrassingly, the non-compliance was largely due to the department’s use of the government’s own Check Employment Status for Tax (CEST) tool, which the body relied on when determining the IR35 status of contractors.

Other government departments – including the Ministry of Justice and the Department for Work and Pensions (DWP) – have also been subject to investigations for IR35 non-compliance. Collectively, the IR35 bills issued to government departments amount to more than £250 million.

Earlier this year, the Public Accounts Committee (PAC) highlighted a number of issues with the CEST tool though no upgrade has subsequently taken place, nor have any plans been announced to correct its’ shortcomings. The PAC review found that: “some questions within CEST were difficult to interpret correctly, and the guidance was long, too general in scope and not integrated into CEST itself”.

Andy Chamberlain, Director of Policy of IPSE, called Defra’s final tax bill “eye-watering” and criticised the tax office for its approach to recovering taxes. He said: “Firstly, it seems rather pointless to collect tax from a public authority that ultimately gets its funding from the same pot that HMRC is trying to fill.

“It is not at all clear that the taxpayer is any better off as a result of all the time and effort that has been put into generating this bill – in fact, there is a distinct possibility that the opposite is true”.

“Were this a private sector company, it is likely that HMRC’s view would be challenged in the courts. Sadly that is very unlikely to happen with public authorities, which means HMRC can bully them into avoiding contractors altogether. This is bad news for the departments and bad news for public services”, he concluded.