The Post Office has become the latest public body to face the consequences of historic non-compliance with the Off-Payroll Working (IR35) rules, with an estimated tax bill of more than £104 million.
In a referral published by the Competition and Markets Authority’s Subsidy Advice Unit, the Department for Business and Trade confirmed it intends to provide funding to enable the Post Office to settle its astronomic IR35 tax liability. The subsidy forms part of a wider support package, which also includes funding for ongoing Horizon scandal remediation and inquiry costs.
The Government has stated that the funding is necessary because the Post Office is not in a position to meet the liability itself.
Significant compliance failures
While the precise failings that led to this outcome have not yet been made public, the scale of the liability points to a serious breakdown in Off-Payroll compliance, possibly either a failure to carry out IR35 status determinations altogether, or high volumes of incorrect determinations made without taking reasonable care, quite possibly via HMRC’s CEST tool. In either case, the consequences for the Post Office are substantial and represent one of the largest IR35 liabilities seen to date.
This adds the Post Office to the long list of public sector organisations, including the Department for Work and Pensions, DEFRA, and UK Research and Innovation, that have incurred large tax bills following HMRC reviews of contractor engagements – with liabilities over £260 million in total so far.
Public sector protection not available to private businesses
Unlike private sector organisations, the Post Office has the benefit of Government support to fund the liability. For private businesses, a tax bill of this size could have far more serious consequences, potentially threatening the future of the organisation.
This is the harsh reality of the Off-Payroll Working rules, and HMRC has shown it is willing to pursue organisations for significant sums where it finds non-compliance.
Lessons for engagers
Off-Payroll / IR35 compliance must be treated as an ongoing priority.
Many organisations continue to rely on contractors to deliver specialist expertise and critical projects. However, engaging contractors through limited companies requires robust and evidenced processes that can demonstrate reasonable care has been taken.
To mitigate risk, engagers should ensure:
- Internal responsibilities are clear.
- IR35 status determinations are carried out for all relevant engagements, with no blanketing.
- Determinations are thorough, dealt with on a case-by-case basis and evidence-based.
- Contracts accurately reflect the reality of the working relationship.
- Compliance processes are regularly reviewed.
Where there are concerns about historic compliance, seeking independent specialist advice can help identify risks and take corrective action before HMRC opens an enquiry.
The Post Office won’t be the last to fall foul
The Post Office case reinforces a pattern that has emerged since the introduction of the IR35 reforms. Both Public and private sector organisations have faced significant tax liabilities where compliance has fallen short.
The lesson is simple: Off-Payroll Working compliance is not optional, and the financial consequences of getting it wrong can be severe and even life-changing.
If your organisation would like support reviewing its IR35 compliance or preparing for a potential HMRC enquiry, Bauer & Cottrell can help. Contact us to find out more.
