Analysis of The Home Office’s latest accounts by CoComply suggests the department has set aside £80.7 million to cover potential historic breaches of IR35. The department’s Annual Report and Accounts 2025-26 include a £74.5 million provision for employment taxes and interest, plus a £6.2 million VAT accrual.
Analysis by CoComply has found that the liability comes from supplier contracts that the Home Office first treated as ‘contracted-out’ services. These contracts were later found to be supplies of workers. That means the department, rather than its suppliers, may have been responsible for assessing those workers’ tax status.
The £74.5 million remains a provision rather than a final settlement with HMRC. The accounts do not name the suppliers or say how many workers are affected.
The disclosure is the latest in a run of large IR35 bills across the public sector. In February, the Post Office was hit with a £104 million HMRC bill, which the Department for Business and Trade is funding. Last month, the Cabinet Office disclosed a £38.5 million liability, with a possible further £8.9 million penalty.
Michael Cleavely, founder and CEO of CoComply, said: “What makes the Home Office case so significant isn’t just the size of the figure but the cause. Most IR35 failures come down to getting individual contractor assessments wrong. Here, the problem started much earlier. Contracts were labelled as outsourced services when the department was, in effect, buying people.
“Engaging a consultancy under a Statement of Work doesn’t make it a genuinely outsourced service,” says Cleavely. “What matters is how the work is delivered, who manages the people and who is responsible for the outcome. The contract’s title counts for far less than how the arrangement works in practice.
“Large organisations often have hundreds or thousands of people working through suppliers, and no single team sees the whole picture. Procurement signs the contract, finance pays the invoice and the business manages the work. If an engagement is wrongly classed as outsourced at the start, it can skip IR35 checks entirely. That’s why classification has to happen at the outset and be reviewed as arrangements change.”
CoComply warns that private sector organisations face the same risk, particularly when engaging consultancies, professional services firms and technology suppliers.
