HM Courts and Tribunal Service receive £12.5m IR35 bill

HM Courts and Tribunal Service have become the latest victim of the IR35 legislation, and have been hit with a £12.5 million tax bill from HMRC due to making incorrect IR35 status determinations.

This has been revealed in the 2020-2021 Annual Report and Accounts for the HM Courts and Tribunal Services. In the document, it is stated that “in 2019, HMRC challenged the MoJ to revisit employment status determinations for off-payroll workers engaged between 6 April 2017 and 5 April 2020, where we had previously concluded workers were operating outside of the off-payroll working rules”.

HM Courts and Tribunal Services is an executive agency of the Ministry of Justice (MOJ).

HM Courts and Tribunal Service follows DWP and Home Office

As Ryan Dawson, IR35 Project Manager at Kingsbridge notes, ‘’following on from the DWP and the Home Office, this is the third Government Department to be stung by the taxman”.

Back at the end of July, it was reported that the DWP had been hit with a £87.9 million IR35 tax bill as a result of incorrectly assessing the IR35 status of contractors. The DWP had used CEST to assess status. It is not currently known exactly what mistakes the DWP made when using the CEST tool, but the DWP has not currently been subject to any penalties for the incorrect statuses.

And not long after this story broke, we also shared the news that the Home Office had received an IR35 bill. The Home Office was subject to a bill of £29.5 million, for loss in tax and national insurance from April 2017-18 up until 2020-21. The Home Office also received a suspended penalty of £4 million from HMRC.

CEST Tool may have been used by the Ministry of Justice

As Matt Tyler, IR35 Consultancy Manager at Kingsbridge notes, “looking at the document, it doesn’t categorically state that CEST was used for the determinations produced by the MoJ. The only line we have that indicates that may be the case is: “During the financial year 2020-21, HMCTS has reviewed all off-payroll engagements using HMRC’s guidance and online status indicator”.

The report also does not state which status tool was used from April 2017 to April 2020, so it is not yet clear whether CEST was used during the period that HM Courts and Tribunal Service have been fined. Matt Tyler goes on to comment that ‘with that in mind really, all we can take away from this is that yet another government body/Public sector entity has demonstrably got IR35 wrong. The Ministry of Justice aren’t the first, they won’t be the last.”

CEST continues to come under fire

With the recent cases from the Home Office and the DWP, Dawson comments that this provides “further evidence that the HMRC CEST tool and guidance is not fit for purpose and undeniably throws uncertainty over the accuracy of assessments both made in the past and those in
the future.”

This follows on from a HMRC report at the end of June, which disclosed that 21% of uses of the tool received an indeterminate result, from 25th November 2019 to 31 May 2021.

This amounted to 210,000 users of the tool.

Taking all this in mind, Dawson warns that “we’ve spoken at length of the failings and shortcomings of the CEST tool previously and I encourage all businesses to avoid it entirely by not relying on its output in the future. As a bare minimum, you should be obtaining a second opinion on status and wherever possible consider insuring your status determination.”

If you are on the lookout for an alternative solution for your business, one option you could look at is  Kingsbridge’s award-winning IR35 status tool. The tool has been designed to offer a comprehensive and clear tool for recruiters, clients and contractors alike.

The hybrid tool ensures that every user will receive an inside or outside IR35 result – as any indeterminate results will be passed to our expert IR35 team for manual review. And if you are a recruiter concerned about your liabilities, you could back it up with our Off-Payroll Protect insurance.

To find out more, email ir35@kingsbridge.co.uk.