Another Day, Another Public Sector Body IR35 Tax Bill: What You Can Learn From UKRI’s £36m Tax Bill

It’s the case that another public sector body, UK Research & Innovation (UKRI), has received an IR35 bill. This one is to the tune of £36 million – taking the total amount owed from public sector tax bills related to the IR35 legislation to over £300m.

Considering the public sector reforms came into force in 2017, this high figure is significant. Here, we outline the issue, and how those assessing contractors’ IR35 status can protect themselves against risk.

What happened with UKRI?

First, let’s look at where it went wrong for UKRI.

UKRI is sponsored by the UK Department of Science, Innovation and Technology, and supports the work of nine research councils. This includes the UK’s national innovation agency – Innovate UK – who is the one brought to light in this case.

Innovate UK was found to have engaged some contractors who should have been considered inside IR35 and subject to income tax and National Insurance Contributions, which is what triggered the £36 million tax bill.

The issue with IR35 in the public sector

The public sector should be at the forefront of the changes to IR35 – because they and HMRC are one and the same. They’re both government-funded, so in theory, they should have the best support available from another government department. Instead, the public sector has become a laughing stock in their execution of IR35 reforms – something we can all agree has been a failure.

In fact, many aren’t even surprised by these sizable tax bills given the sheer volume of money owed. What’s more, the public sector hasn’t pushed back on HMRC’s challenges, which isn’t the case for the private sector. Here at Kingsbridge, we are defending some of the first challenges into how end clients operate the off-payroll working rules.

Whilst it hasn’t been revealed which tool UKRI utilised in determining the status of its workforce, it’s likely that HMRC’s CEST tool was used, as has been the case with many other government departments in a similar position owing tax. As CEST is proven to be untrusted, in our opinion it shouldn’t be used on its own to determine IR35 status.

Meeting IR35 compliance requirements

As a private sector business or fee payer, receiving a £36m backdated tax bill could be crippling, and could even cause an organisation’s closure. That’s why compliance with IR35 reforms is key.

UKRI’s failure to determine their contractors’ status correctly may make others question how to do so successfully. But a £36m tax bill shouldn’t force private sector businesses to make knee-jerk reactions like banning contractors. Off-payroll rules can be managed compliantly, especially if you join forces with a trusted partner like Kingsbridge.

We recommend investing in a good process, and potentially taking out IR35 insurance. This gives you access to the best defence available, so you can shield your business from an IR35 bill.

Partner with Kingsbridge

Here at Kingsbridge, we can help mitigate the IR35 risk through Off Payroll Protect. This covers the fee-payer and businesses that engage with contractors either directly or through an agency.

For recruitment agencies – who are usually the fee-payer – it provides peace of mind across the entire contractor supply chain. And for businesses who engage with contractors, you’ll be assured when taking on new contractors, and prepared if ever you’re investigated by HMRC. The market-leading policy insures any outside-IR35 status determination, and has other benefits, such as covering legal defence costs.

To discover how our offerings can help you comply with IR35 legislation, and protect yourself against it, get in touch with our friendly team today.