A director at UHY said the departments had “obviously been taking a relaxed approach to the rules they should apply to people providing services to them” and have “clearly adopted a novel interpretation of the strict rules in deciding which of its contractors are self-employed and which should be treated as employees”.
It comes after the new IR35 rules came into effect for thousands of medium and large employers in April 2020.
The rule applied to public sector entities from April 2017, so the arrears represent four years tax, National Insurance and interest.
In a statement, Mike Crellin, a director at UHY Hacker Young, said: “Apart from the Alice in Wonderland world of one Government body fining another – who ultimately has to pay the tax – an added amusement is that the DWP apparently vetted all their contractors using HMRC’s Employment status tool (“CEST”).
“HMRC have always insisted that their tool was definitive but it has been severely criticised by everyone else for allowing only “yes or no” answers in reply to questions around what can frequently be subtle or complicated terms of engagement.”
He added: “If Government officials can’t get employment status right despite following HMRC’s advice to use “CEST”, what hope is there for the private sector where medium and large employers have been forced to decide on the employment status of their contractors in the real world since April 2020 on risk of paying arrears and penalties?”