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Tax bill awaits HS2 after issues with implementing IR35 procedures

This week, Contractor Calculator reported that HS2 is facing a tax bill of £9.5m for errors made when implementing the off-payroll IR35 reforms.

An internal review, coupled with additional guidance from HMRC, revealed HS2 did not carry out employment status determinations on a number of contractors because they were supplied by a third-party provider.

This demonstrates issues that many end clients could face if they rely on the supply of a poorly executed contracted-out service without completing any due diligence on the third-party supplying.

Under ESM10010, a contracted-out service is clarified to mean “Where a person enters into a contract for a fully contracted out service, they will not be the client. This is because the worker’s true client is the party who the work has been contracted out to; the ‘service provider’. The service provider is the party most akin to the worker’s employer. The person receiving the fully contracted out service has not meaningfully entered into a contract for the supply of the worker”.

If the end client is found to be the party who is most akin to the workers employer, they will be the party responsible for the entire tax bill, plus potential penalties if HMRC deem that they failed to take reasonable care.

Olivia Sear, Head of Compliance at Stonebridge comments “It is not enough to simply rely on any third party that claims to remove the headache of IR35 from your plate and feign ignorance if HMRC request clarity on the supply chain. This latest news highlights the importance of ensuring that you hold a compliant supply chain and, if working with a third party, they are supplying a legitimate contracted-out service. This can include completing due diligence questionnaires and requesting information regarding how they contract with any labour supplied within the service. It is also equally as important to continually monitor how you, as an end client, interact with any labour that is supplied within a service that you are the recipient of”.

For further information on contracted-out services, please contact our compliance team at

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