DWP owes £88m in off-payroll errors due to HMRC CEST

The Department for Work and Pensions has found itself owing HM Revenue & Customs nearly £88m for “historic errors” in assessing tax liability for DWP off-payroll workers over the period 2017-21.

According to DWP’s ‘Annual Report and Accounts 2020-21’, HMRC’s much maligned Check Employment Status Tool (CEST) was used by DWP to assess their engaged off-payroll workers’ employment status or “correct tax treatment” in those years.

This followed HMRC IR35 legislation from April 2017 that required public sector bodies to take responsibility for determining the IR35 status of contract workers, a requirement that moved into the private sector this year. 

Listed under ‘Fruitless payments’, the note in the annual report referring to the tax liability said: “In March 2020 DWP received a Letter of Offer from HMRC that formally concluded their review of IR35 implementation in DWP. The result was agreement on historic errors and acceptance by DWP of a liability for tax/NI [National Insurance] plus interest for the financial years 2017-18 (£21.1m), 2018-19 (£36.7m) and 2019-20 (£29.7m). A liability for 2020-21 (£0.4m) was also subsequently agreed.”

The total amounted to £87.9m.

Commenting, Seb Maley, CEO of IR35 specialist Qdos, said: “Given HMRC’s very own IR35 tool – CEST – was used to assess the IR35 status of contractors, here we have proof that using it can easily lead to mistakes and staggering financial consequences… as we can see here, there’s zero guarantee that HMRC will stand by answers it delivers.”

Also noted in the same section of the report were ‘Other Accountability issues’, which addressed operations by the Government Internal Audit Agency’s Counter Fraud and Investigation team’s services to DWP. This includes the investigation of internal fraud and/or other serious breaches of the DWP’s standards of behaviours by its own employees, contractors and providers. 

It said that 22 investigations in ‘salary, expenses and other non-benefit losses’ were completed, resulting in “proven losses” of £95k. In ‘non-contributory and contributory benefit losses’, 32 investigations were completed, resulting in proven losses of £198k.

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