UKRI's £36m IR35 Tax Bill Raises Concerns And Questions

UK Research and Innovation (UKRI), a public sector body, recently faced a £36 million tax bill for unpaid IR35 taxes. The payment followed an investigation into 285 contractors engaged by UKRI as monitoring and assessment officers. This incident adds to a series of reports highlighting government bodies' struggles with IR35 compliance. Concerns arise over the circularity of one government body collecting from another, raising questions about decision-making, the use of the CEST tool, and the implications for contractor recruitment suppliers.

The decision to hire contractors instead of employees raises questions about the rationale behind UKRI's choice and the individuals responsible for such decisions. This trend is noticeable across public bodies, including HMRC, warranting further exploration.

If UKRI used the CEST tool, it is crucial to disclose the specific details of what went wrong. Was it due to input errors, non-compliance with government guidance, insufficient guidance, or inherent flaws in CEST? Conversely, if UKRI did not utilize CEST, the reasons behind this decision and the alternative approach need clarification.

These questions must be answered to ensure lessons are learned and improvements are made in IR35 compliance.

Contractor recruitment suppliers face significant implications, as public sector terms often require them to agree to tax indemnities, including IR35. If UKRI used recruitment agencies to provide contractor officers, there is uncertainty whether these agencies will be held responsible for the tax bill. The situation highlights potential flaws in communication or the system if the government's own bodies struggle to navigate IR35 correctly.

The £36 million IR35 tax bill faced by UKRI raises concerns about compliance within the public sector. Understanding the decision-making process, evaluating the efficacy of the CEST tool, and addressing communication gaps are crucial for improvement. Lessons must be learned to prevent financial burdens and ensure compliance with IR35 regulations for government bodies and contractor recruitment suppliers. A thorough assessment of the system is necessary to enhance efficiency and communication in public sector engagements.

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5th June