IR35: HMRC v the public sector

Graham Caddock, 22 June 2023

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In recent years, HMRC have announced a number of crackdowns on the IR35 rules designed to help tackle the ongoing problem of “disguised remuneration”.  

Although the pandemic curtailed HMRC’s ability to undertake the number of IR35 enquiries it originally planned, many of the recent “off-payroll” enquiries have focussed on two areas, the public sector and certain media personalities. Although the recent Gary Lineker case went in favour of the football pundit, other cases involving Christa Ackroyd, Eamonn Holmes, Lorraine Kelly and Adrian Chiles have brought mixed results for the tax authorities.  

It was recently announced that public sector IR35 liabilities have reached a staggering £300 million after another government agency was handed a multi-million-pound tax bill. As a consequence, it is likely that HMRC will see IR35 compliance as a fruitful area for significant tax collection and we anticipate more IR35 investigation activity in the coming months. 

What are the IR35 rules? 

To recap, IR35 (in various forms) has been in place for over 20 years with the intention to get tough on bogus claims for self-employment. The rules were initially designed to help combat the scenario whereby someone leaves their employment on Friday and returns the following Monday as a “self-employed” contractor, often providing their services through a personal service company (PSC).  In most cases, the PSC route led to individuals paying less tax/national insurance contributions (NICs) whilst effectively carrying out the same role they were doing before.  

Depending on the specific scenario (see our earlier blog for the details), IR35 obliges either the worker or the “end-user” to self-determine whether the actual role being performed (and ignoring the presence of the PSC) gives rise to an employment relationship. If an employment relationship is acknowledged (or accepted following a HMRC enquiry), then the income is treated as earnings and subjected to PAYE and NIC.  

Why is HMRC focusing on the public sector and media personalities? 

There may be several possible reasons:  

  1. Firstly, the involvement of high-profile personalities may have satisfied HMRC’s “public interest” agenda, since many have been using PSCs to mitigate their tax liabilities. Perhaps the temptation of “six-figure” settlements is too much for HMRC to ignore! 
  2. Another factor may be that there are fewer targets to go after compared to the thousands of private sector businesses in existence. 
  3. Perhaps the public nature of the media personality roles makes it easier for HMRC to corroborate their tax status? IR35 enquiries can be a very resource consuming process for HMRC.   
  4. Finally, is it just easier for HMRC to collect the tax due from another government backed agency? 

What’s the impact of IR35? 

One of the fundamental criticisms of IR35 is that it is notoriously difficult to determine whether a contract characterises one of employment or self-employment. This is an extremely complex and nuanced area that is reflected in the number and regularity of IR35 cases brought before the tax tribunals. However, as the initial status decision is one of self-determination, HMRC are likely to see this area as being ripe for challenging any questionable outcomes. 

More recently, and certainly since the start of the pandemic, there has been anecdotal evidence that HMRC have not “policed” the operation of IR35 very well. This has perhaps given PSC owners, end-users, and their advisors a false sense of security that HMRC are unlikely to target them with any enquiry activity. 

Finally, we have recently become aware that HMRC Employer Compliance inspectors are visiting business premises more often to carry out face to face interviews. Status determinations and IR35 compliance is a key area of tax risk for HMRC, and great care should be taken when providing any answers to the visiting HMRC compliance teams. Modern HMRC staff are trained to be friendly, which can lead to taxpayers letting down their guard and saying the wrong thing. 

How can we help? 

We at Lubbock Fine have extensive experience in handling all types of HMRC investigations, especially those related to employment matters. If you have concerns about an HMRC enquiry or the tax implications of hiring employees or engaging self-employed contractors, please get in touch with Graham Caddock (, our Tax Investigations Director, for a free confidential discussion.