Deputy chair of board was boss of HMRC when tax rule was reformed

HS2 Ltd could have to pay millions to the taxman after wrongly assessing its status under off-payroll working rules brought in by its own deputy chair when he was the boss of HMRC.

The company’s annual report and accounts for 2021/22 revealed that a £9.5m provision had been set aside for getting its tax status determination wrong under the IR35 rules.

The rules, designed to punish ‘disguised’ employment, was reformed last year, with responsibility for assessing the tax status of contractors shifting from the contractor themself to the medium and large businesses engaging their services.

The reform provoked concern in the freelance-reliant construction sector

Sir Jon Thompson was the chief executive at HMRC between 2016–2019 when the legislation was introduced in 2017.

According to HS2, the new tax assessment processes had already been implemented prior to his joining the board in July 2021.

>>Also read: Firms flouting IR35 tax rules face multi-million pound penalties as grace period ends

>> From the archive: IR35: Is this the end of the road for the freelance?

HS2 confirmed it had used HMRC’s Check of Employment Status for Tax (CEST) tool as well as accompanying guidance.

The company’s report of the matter said: “During 2020, internal checks and additional HMRC’s guidance highlighted some cases of workers who were engaged through other suppliers that had not been appropriately reviewed.”

Since November 2020, HS2 have implemented enhanced IR35 compliance processes and the company now claims to be fully compliant.

It added that HMRC was undertaking a compliance review of the historic assessment of contractor employment status, which started in May and will confirm the additional tax liability that HS2 will incur.

“Once the review has been concluded, the Company will review whether there is cost that can be recovered from the suppliers to offset the tax liability,” said the HS2 report.

An HS2 Ltd spokesperson told Building: “HS2 Ltd takes our obligations to comply with tax legislation extremely seriously and is working with HMRC on a compliance review to assess any historic tax liability.

“Since 2020, when HMRC issued new guidance, HS2 Ltd has implemented new processes to ensure we meet all liabilities under the Off Payroll Working Legislation.”