UK Research and Innovation (UKRI) has become the latest public sector body to encounter issues with IR35 rules, as revealed in its 2021-2022 Annual Report. Specifically, Innovate UK, an entity of UKRI, made errors in classifying the IR35/Off-Payroll status of its contractors. These errors have resulted in a substantial liability of £36 million in back-dated tax and National Insurance Contributions (NICs) for tax years 2018 through to 2022.
UKRI joins a growing list of public sector bodies that have failed to comply with the Off-Payroll rules including Dept for Work & Pensions, DEFRA, Home Office and MOJ to name a few, resulting in hundreds of millions of pounds in public funds owed to HMRC.
Whilst the amounts UKRI owes will not bring their operations to a halt, these figures should serve as a crucial reminder to all engagers both in the public and private sectors, as to the complexity of the Off-Payroll rules. Engagers should review their IR35 compliance procedures thoroughly and prioritise their due diligence when engaging contractors. By being proactive in understanding the legislation and implementing robust processes for establishing the IR35 status of contractors, engagers can reduce the risk of significant financial liabilities and reputational damage.
It is important to recognise that the IR35 legislation is highly complex, with case law continually evolving. UKRI’s case demonstrates what could be at stake and emphasizes the importance of getting things right from the outset, instead of relying on guesswork and hoping for the best. Simple processes or tools alone will not suffice in navigating the complexities of IR35. Engagers should seek specialist expert advice to ensure compliance, potentially saving millions of pounds (and even their business) in the long run.