• NHS Digital accounts reveal IR35-related bill
  • Situation prompts other NHS ALBs to review own IR35 status

NHS England and Improvement are reviewing contractors’ tax statuses, and say they are “prepared for every possible outcome”, after NHS Digital was hit with a £4.3m IR35-related bill.

NHS Digital’s most recent annual accounts revealed it had been handed the bill despite having initially used HM Revenue and Custom’s Check Employment Status for Tax tool. The CEST tool aims to help employers decide whether somebody falls inside the scope of IR35 and whether they should treat somebody as an employee or self-employed for tax purposes. 

The report read: “Following the implementation of the new rules for IR35 introduced for the public sector in April 2017 [which meant the responsibility for determining a contractor’s tax status for IR35 purposes shifted from the worker to the public sector organisation], we undertook a considered assessment of the status for each individual contractor which we believed met the HMRC requirements.

“However, HMRC have challenged our assessment. We have been in extensive discussions but now consider it appropriate to acknowledge their position and create an accrual covering the period from 1 April 2017 to 31 December 2018.”

HSJ has learned the situation has prompted other NHS bodies to assess whether they themselves could also be affected.

NHSE/I told HSJ: “We are working with HMRC in review of IR35 statuses, and the NHS is prepared for every possible outcome.”

The NHS Business Services Authority said it is currently considering whether to provide anything in its accounts “in relation to our use of, and reliance on” the CEST tool to determine the IR35 status of off-payroll engagements.

NHS Digital told HSJ discussions were underway with HMRC on potential liabilities, however, it could not say whether its use of the CEST tool “has led to possibly higher liabilities”.

It added: “Until we fully understand the legal reasoning of an assessment produced by HMRC, we will not make a decision on whether to appeal.”

However, NHS Property Services has insisted it is “fully” compliant with IR35 legislation and a spokesman said: “Our process of contracting with individuals has been assessed as part of a recent review by the audit and risk governance committee and no issues were raised.”

HMRC said it could not comment on individual cases. However, it defended the accuracy of its CEST tool, saying it could provide a determination in at least 85 per cent of cases, while guidance and support is offered in the “minority” of cases where there are problems.

UPDATE: This article has been updated to include a comment from NHS Property Services.