High Speed 2 (HS2) is facing a £9.5 million tax bill, for errors made when implementing the off-payroll IR35 reforms. HS2) is the company responsible for developing and promoting the UK's new high speed rail network.

In HS2’s annual report and accounts for 2021-2022, the company admits that £9.5 million was set aside for getting tax status determinations wrong under the Off-payroll working rules. HS2 confirmed its use of HMRC’s own Check of Employment Status for Tax (CEST) tool and accompanying guidance to conduct those assessments. Both the tools and legislation were introduced in 2017 under the guidance of the then HMRC CEO Sir Jon Thompson, who is now Deputy Chair of HS2.

Dave Chaplin, CEO of tax compliance firm IR35 Shield said, “HS2 facing a £9.5 million tax bill for wrongful assessment of its contracting workforce is one thing but the fact that it is doing so when its deputy chair, Sir Jon Thompson, is the person responsible for introducing the legislation whilst in his role as CEO of HMRC is both risible and alarming at the same time.”

“It is one more shining example to support calls along with a growing plethora of evidence to ditch a legislation that is having a hugely damaging effect on contractors, the firms that hire them and the economy as a whole,” Chaplin said. “And, the fact that HS2 is one more public sector organisation that is facing a tax bill in a long line of others just proves that the legislation is unworkable.”

“Firms in the private sector may wish to take heed from HS2’s admission, that ‘We use HMRC’s own Check of Employment Status for Tax (CEST) tool and accompanying guidance to make those assessments.’ Clearly, CEST offers its users no protection at all,” Chaplin added. “Contrary to HMRC’s assertions during the consultation phase, that roughly a third of contractors would be ‘inside IR35’, in this instance, we see that for the most recent year, HS2 had classified 93.2% of them as “deemed employees.” This appears to be a significantly large number, particularly as HS2 is clearly a project-based effort.