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DWP hit with £87.9m IR35 tax bill

The Department for Work and Pensions (DWP) paid £87.9 million to HMRC following a review of its IR35 compliance procedures, which found the department had incorrectly assessed the employment status of some of its contractors over several years.

The DWP reported the figure in its most recent set of accounts detailing the department's spending during the 2020/21 financial year.

It details how the DWP had a tax and National Insurance liability for the financial years of 2017/18 (£21.1m), 2018/19 (£36.7m) and 2019/20 (£29.7m). Those figures include interest.

A liability for 2020/21 of £400,000 was also agreed, bringing the total to £87.9m.

Designed to tackle ‘disguised employment', IR35 tests whether someone who works for an employer through an intermediary like a limited company genuinely is self-employed or not, determining how much tax and National Insurance they and the employer pays.

It does this through a series of tests and putting the responsibility of choosing a worker's employment status in the hands of the employer, rather than the worker concerned.

IR35 has been in the public sector since April 2017 and came to the private sector in April 2021 and has been a point of contention among many self-employed individuals who now have a higher tax liability.

Talk to us about IR35.