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Public sector bodies accused of freezing out SME consultancies over IR35 compliance fears

Governmental departments are cutting SME IT consultancies loose, following on from the publishing of The House of Commons Public Accounts Committee report, which confirmed mistakes were made during the implementation of the IR35 reforms in the public sector. These mistakes resulted in government departments owing £263m in unpaid tax to HMRC.

Last year it was reported that the Department for Work and Pensions (DWP) had to pay £87.9 million in tax arrears for failures in IR35 procedures regarding identifying the correct employment status of contractors between 2017-2020. Since then, details of similar IR35-related tax bills have surfaced by other departments which include the Home Office and the Ministry of Justice (MoJ).

In panic, government departments are now changing their hiring policies and implementing bans on the use of consultancies whose directors are actively involved in the delivery of the service their companies provide, so they do not have to carry out IR35 status determinations for these engagements and instead cease working with these SME suppliers.

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