The public sector and IR35 – What can the private sector learn from the latest HS2 IR35 fiasco
The recent £6.2 million settlement by High Speed 2 Limited (HS2) to HMRC for failing to comply with Off-Payroll Working (OPW) rules has highlighted the importance of proper IR35 regulation enforcement.
Introduced in 2017 for the public sector and extended to larger private sector businesses in 2021, the IR35 rules are designed to stop disguised employment, where workers supply services through a personal service company (PSC) to avoid direct employment taxation.
HS2’s failure lies in its misunderstanding of its role in determining employment status for workers supplied through third parties, with the company either ignoring its responsibility or wrongly believing it was not the end client, leading to non-compliance and a costly penalty. This error underscores the need for both public and private organisations to fully understand the legislation and apply it consistently.
Private sector companies should take note, as HMRC is now actively scrutinising compliance with IR35 in private organisations. Businesses must take ‘reasonable care’ in determining employment status and documenting compliance throughout the worker supply chain. Failures such as those demonstrated by HS2 can lead to significant financial consequences, including settlements, late interest payments, and penalties.
To avoid such a fate, private organisations should develop comprehensive processes to assess the IR35 status of their workers to ensure compliance, as well as conduct regular reviews of their procedures. This includes creating an engagement process, training stakeholders, and maintaining clear governance. Businesses should also be prepared for HMRC inspections, with clear evidence of their compliance measures ready for examination.
The private sector can clearly learn from public sector mistakes like HS2’s by taking proactive steps now, ensuring their compliance processes are up to date, and thereby avoiding any costly settlements later.
If you would like to discuss engaging interim support, review your IR35 compliance and hiring processes, or ensure your IR35 compatibility is future proof, please contact Phill Machell or Jenny Neve.
