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HS2 hit with final £6.2 million IR35 bill as IR35 reforms continue to draw criticism

August 12, 2024

A coalition of industrial leaders has launched a last-ditch effort to implore Rishi Sunak not to scale back the HS2 rail line, warning that “constant changes” to the project were damaging Britain’s reputation among overseas investors.

HS2 has revealed a final IR35 liability of £6.2 million in its 2023/24 accounts, following a compliance review by HMRC. This payment concludes the tax obligations under the Off-Payroll Working Legislation introduced in 2017.

The review found that only 5% of HS2’s contractors were classified as outside IR35, raising concerns about the legislation’s impact on public projects. Industry experts argue the policy is causing financial inefficiencies and may deter top talent from participating in government projects.

Commenting, on the news, Dave Chaplin, CEO of IR35 compliance firm IR35 Shield said: “HS2’s latest annual accounts have revealed a final IR35 bill of £6.2m, highlighting the circular and counterproductive nature of Off-payroll legislation in the public sector.

“Firstly, we’re witnessing a bizarre money-go-round. HS2, funded by the government, pays £6.2m to HMRC, which goes to the Treasury, only for the Treasury to then fund HS2 with monies including this £6.2m. It’s a bureaucratic circus that serves no real purpose.

“The compliance efforts themselves are a net loss for the Treasury. HMRC caseworkers’ salaries result in only about a third returning as tax revenue. Add to this the increased costs from pushing contractors onto payroll and the use of consultancies, and we’re looking at a significant net loss for the public purse.

“The human cost is equally concerning. With only 5% of contractors deemed outside IR35, we’re likely to see top talent blackball the HS2 project, leading to higher cost alternatives.

“Perhaps most alarming is HS2’s reliance on HMRC’s CEST tool, which has clearly failed them. Many private sector firms abandoned CEST long ago due to its well-documented shortcomings.

“Off-payroll in the public sector is, in essence, a loss-making exercise for the Treasury. The HS2 accounts prove it, as did the Home Office accounts published earlier in the month.

“The private sector is equally struggling. Rachel Reeves is seeking to plug a £22bn gap in the public purse. She could start by looking at the IR35 Reforms, which are a textbook example of misguided policy implementation worthy of a tax policy Darwin award.”