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The Public Accounts Committee (PAC) has released a report 'Lessons from implementing IR35 reforms'. It is highly critical of HMRC and government bodies in their implementation of IR35, saying it is “not acceptable” that central government is bearing the cost of tax owed by individuals who have been wrongly assessed as self-employed.

The PAC calls on the government to answer its criticism within two months and explain the £263m that central government departments such as the Home office and DWP owe to HMRC in back taxes due to misinterpreting the IR35 rules

The report says that HMRC have “done little to understand the wider impact of the reforms on workers or labour markets”, or particular sectors, and “underestimated the additional costs of implementing the reforms to hiring organisations”. 

It also observed that the reforms of the Off-Payroll Working rules had created recruitment problems for some public bodies. In particular, recruiting companies and contractors have reported that to avoid perceived risks of failing to comply, there was a trend to no longer engage workers through Personal Service Companies.

Conclusions and recommendations

The committee concludes by saying that "HMRC needs to demonstrate the system can operate effectively and fairly in the real world, and investigate whether the costs and unintended consequences are proportionate to the additional tax revenue which the reforms raise".

Useful guides on this topic

Personal Service Company (Tax)
What is a PSC? What are the tax implications for a PSC?  

IR35: Off-Payroll Working
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?

Employment status & detailed checklist
Why is it important to check my employment status? What tests should I use? What is the recent case law?

External link

PAC report: Lessons from implementing IR35 reforms


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