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Two More Government Departments Fail to Manage IR35: What it Means for Recruiters

For those who are taking notice, it’s no longer a surprise when large, public-sector organisations, even high-profile government departments, are found to have failed to manage IR35 correctly. The news that the Ministry of Justice and DEFRA have now been added to the list, between them facing a bill of over £120 million, confirms what we already know – that IR35 assessments are extremely complex, the Government’s own online assessment tool, CEST, is not fit for purpose and it can be extremely expensive to get it wrong.

What’s the story this time?

According to DEFRA’s recently published annual reports and accounts, HMRC launched an investigation in 2019, looking at their “compliance with the off-payroll working rules in relation to contingent labour.” DEFRA’s report claims they accepted responsibility for £19 million lost to the exchequer since April 2017 when the rules came into force. However the same report corrects this statement, citing incorrect “assumptions” made in the initial calculations and after clarifying with HMRC, they now owe £48 million.

The accounts published by the Ministry of Justice reveal a £15 million penalty levied by HMRC because they were “careless” in their application of the off-payroll regulations. This is in addition to the £72 million bill for unpaid tax and NICs. This penalty has been suspended for three months subject to certain conditions, which include filing obligations and additional checks on all assessments determined outside the scope of IR35.

So far, a total of five government departments have received enormous tax bills for failing to comply with the off-payroll rules. Four of these, including the Department for Work and Pensions and HM Courts and Tribunals Service, have admitted to using the Government’s own CEST tool to make determinations. There can no longer be any question of CEST producing reliable results, or of HMRC standing by their tool in any meaningful way.

What does this mean for recruiters?

Your clients have the exact same responsibilities that these government departments failed to execute, and they don’t receive the same guidance, support and training from HMRC. IR35 determinations can be complex, and most clients need expert help to assess IR35 status correctly.

It’s important that everyone in your supply chain is confident that IR35 status is being assessed correctly. If this isn’t the case, your clients, your contractors and you could find yourselves involved in similar HMRC investigations, with similar consequences.

If you think your clients could benefit from expert advice, or even if you just have questions about IR35, please call our expert team on 01296 468483 or email

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